Danone - Slow start to FY 2017; guidance updated for WhiteWave

Davy Research
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Danone’s Q1 update confirms a slow start to 2017 with organic sales growth of 0.7%, which was in line with consensus expectations. On the conference call, Danone categorised its second quarter as a “transition quarter”, which suggests limited revenue progression. Full year guidance was updated to capture a first-time contribution from WhiteWave – Danone now expects to achieve double-digit EPS growth on a constant currency basis. Underpinning its assumption is ‘moderate’ organic sales growth and an improvement in like-for-like margins. We believe that the market has already arrived at a similar expectation, although our forecasts (EPS +7.6%) include a more cautious stance on margin development for the legacy Danone business. We note that from H2 2017, WhiteWave’s contribution will be treated as organic under a new segmental reporting structure. While valuation is not stretched, we retain our ‘Neutral’ stance in light of on-going revenue challenges and an inflationary backdrop for Danone’s strategic raw materials.