- Danone made an unscheduled announcement Tuesday and raised its 2016 profit margin target, displaying confidence in its efforts to keep costs down amid volatility in markets like China.
- The company said it anticipates its trading operating margin for the year to increase by 50 to 60 basis points. Previously, Danone had predicted a "solid improvement" from its 2015 margin of 12.91%, with analysts' forecasts hovering around a 30 basis-point increase, Reuters reported.
- Danone reiterated its prediction for like-for-like sales growth for 2016, which it expects to fall within the 3% to 5% range.
Danone's focus on cost-cutting mirrors much of the industry's strategy to become leaner as national economies and the pace of changing consumer trends become more volatile. That includes chief global competitors like Nestle, which last month announced it had identified $2.5 billion worth of cost-savings over the next three years.
In its latest quarter, Danone beat analysts' sales expectations with the help of a 2.3% sales bump for the dairy segment, including mid-single digit dairy growth in the U.S. However, much of that growth was pricing-related, as dairy volumes actually fell worldwide, particularly in markets like Russia and Brazil. Danone hopes its innovation pipeline in the U.S. and European markets can offset these volume declines.
But just as depending on lower ingredient costs for profitability isn't sustainable for long-term growth (as U.S. dairy companies may soon come to find), a focus on boosting the top line while maintaining an unwieldy bottom line is just as unsustainable. Manufacturers across the industry explore this rigorous balance more as consumers shift from traditional packaged foods.
That's why Danone CEO Emmanuel Faber, who took over the company in October 2014, said he would overhaul the dairy business, which included both cost-cutting and new product development, an integral part of his plan to return Danone to "strong profitable and sustainable growth" by 2020, Reuters reported.