By:
Michael Dennison, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Danone SA ADR is a
multinational food and beverage company. DANOY is the world’s second largest
dairy producer and third largest bottled water producer. Operating through its
four segments of Fresh Dairy Products, Early Life Nutrition, Waters, and
Medical Nutrition, the company collects sales across the globe. DANOY is
located in Paris, France.
• After the purchase of
WhiteWave Foods in July of 2016, DANOY is starting to see earnings accretion as
it expands further into the U.S. organics market.
• The company recently
undertook a €1.25 billion bond issue. Proceeds from the issue will be used to
help refinance some of DANOY’s outstanding debt. The company will also be
redeeming $500 million in WhiteWave Foods bonds due in 2022.
• WhiteWave Foods product
sales saw a 17% jump in Q3 which helped push overall growth for the entire
company up 4.7%.
• DANOY is encouraged by
continued growth in China where the company’s Waters, Early Life Nutrition, and
Medical Nutrition saw significant growth in Q3.
Key
points: The purchase of WhiteWave Foods gave DANOY greater
penetration into the U.S. market, a place that had previously been shrinking
due to declines in consumer demand. The acquisition also gave the company a
market leadership position in the organics food and beverage category, a segment
predicted to grow by double digits in the coming years. Combining these two has
given the company the extra “protein” it needed to push further growth.
A €1.25 billion dollar
hybrid bond issue signals that DANOY is taking advantage of current economic
conditions by paying down previous debt and driving further growth. The company
believes that the issuance will help create a stronger capital structure for
the firm, as well as aid in spurring better growth in its key markets of Europe
and North America. DANOY has also redeemed a $500 million bond issuance from
the acquisition of WhiteWave Foods in order to take advantage of favorable
market conditions at the present moment.
Q3 was very kind to the
company as emerging market growth shone the brightest. The markets outside Europe
and North America experienced YoY 11.1% during the quarter with China being a
particularly bright spot. Europe remained weak with consumer demand for yogurt.
Sales in North America were strong; however, the company pointed to a deflationary
environment in grocery stores as a source for concern.
China was the bright city
on a hill in Q3 for DANOY. The company cites higher GDP growth, an expanding
childhood population, and increased e-commerce as reasons for the growth.
Specialized Nutrition and Waters were the biggest winners of growth.
What
has the stock done lately?
Since being added to the
AIM International Equity fund in April, 2017 the stock has only climbed higher;
+15.3% during that time. YTD, the stock is even better, outpacing the broader
market with a 30% increase. The approval of the WhiteWave acquisition in April
has helped provide bettering sentiment on the long-term growth prospects of the
company and consequently helped push shares steadily higher.
Past
Year Performance: DANOY shares have increased 16.58% in
value during the last year. During Q3 of 2016, shares surged after the
announcement of the WhiteWave Foods acquisition; however, they declined
thereafter due to market sentiment about the deal and whether it would face any
antitrust pressure from European or American regulators.
 |
| Source: FactSet |
My
Takeaway
DANOY is a company primed
for further growth. The company was able to get ahead of its larger food and
beverage competitors with the purchase of WhiteWave Foods, which has secured
its place as a market leader in the organics space. Continued expansion into
China will also be a boon for the company as the country continues to grow its
middle class and its GDP. Danone will also be carried into the future by its
Waters Division. Growth in bottled water is expected to increase over the
medium term as consumers continue to look for healthier alternatives to alcohol
and soda. DANOY shareholders stand to profit from these encouraging macro
trends as the stock is currently knocking on the door of its 52nd week
and looking to surpass it.
 |
| Source:FactSet |
