Food group Danone sees 2016 sales growth below target

By Sudip Kar-Gupta

PARIS (Reuters) - French food group Danone said it expected its 2016 sales growth to come in slightly below its original targets due to a weaker-than-expected fourth-quarter performance at its European dairy business.

Danone blamed worsening market conditions in Spain and problems with a new strategy for dairy brand Activia in some parts of Europe for the shortfall.

"This is a very ambitious transformation for the brand. We have overestimated the speed at which the turnaround would occur," Danone Chief Financial Officer Cecile Cabanis told analysts on a conference call.

She would not give further details on Spain beyond referring to a "negative" performance there.

Shares in the company fell 2.8 percent by 0850 GMT on the back of the cautious sales outlook, even though the company added that it would beat its 2016 target for recurring operating margin improvement thanks to efforts to contain its cost base.

Danone had previously forecast 2016 like-for-like sales growth of 3-5 percent and a recurring operating margin improvement of 50-60 basis points. The company did not give an exact figure for expected sales growth.

Cabanis, who also declined to set any precise financial forecasts for 2017, said Danone would maintain its marketing spending plans on key brands such as Activia, while looking to cut costs elsewhere in order to boost overall margins.

The share price fall made it one of the worst-performing stocks on France's benchmark CAC-40 index on Monday.

"Danone's warning... should not have much impact on EPS (earnings per share) forecasts for 2016 but will undermine confidence in management's ability to deliver," said RBC Capital Markets analyst James Edwardes Jones.

Jones kept an "underperform" rating on Danone shares.

Danone had reported in October a worse-than expected slowdown in third quarter sales growth as difficulties in China hurt its baby food and water divisions.

Danone shares are down by around 4 percent so far in 2016, while the broader STOXX Europe 600 Food & Beverages index has fallen 7 percent in that period.

(Additional reporting by Gilles Guillaume; Editing by Andrew Callus/Keith Weir)