French dairy manufacturer Danone reported a slight increase in sales during the first quarter — but yogurt sales continue to slide, the company said in a release.
Like-for-like sales increased 0.7% in the quarter, with its medical nutrition division reporting the strongest growth, up 8.8%. Meanwhile, like-for-like dairy sales fell 2.3%. The company also announced plans to cut €1 billion — about $1.07 billion — in costs by 2020, anticipating rising milk costs.
The French dairy group is hoping to improve sales with its acquisition of U.S. food maker WhiteWave, expanding its offerings in the natural and organic sector. The company intends to create a new division, dubbed DanoneWave, to include the WhiteWave and Danone Fresh Dairy Products businesses.
Danone has struggled with its Activia brand since European regulators ruled that there was insufficient evidence for the benefits of probiotics. Even mentioning that a product contains probiotics is considered an unapproved health claim.
The company has aimed to revamp the brand’s packaging and marketing strategy, positioning it as a premium product, in an effort to reverse its poor performance. However, CFO Cécile Cabanis has conceded that the company “overestimated the speed of the turnaround.”
Danone is hoping that the WhiteWave acquisition will help boost its performance in dairy and revised its earnings forecast upwards on Thursday on the back of the $12.5 billion deal, which closed last week. As has been the strategy for many major food companies, Danone’s latest deal gives it a health kick, just as consumers are aiming to do the same. Adding the WhiteWave business will make Danone the world’s largest producer of organic foods and marks its entry into plant-based nutrition.
Plant-based milk alternatives have surged in popularity in the United States in recent years. Sales were up 9% in 2015, according to Mintel, while dairy milk sales fell 7% in the same period. Meanwhile, WhiteWave’s Horizon brand gives Danone a strong foothold in the U.S. organic dairy market, which saw sales grow more than 10% in 2015.