Danone infant formula recall casts shadow over results beat

By Dominique Vidalon and Alexander Marrow

PARIS, Feb 20 (Reuters) - French food giant Danone DANO.PA delivered fourth-quarter sales growth above expectations on Friday and said the widespread recall of baby formula was likely to have a modest impact on sales in the next quarter.

The group, whose brands include Aptamil formula and Evian water, delivered a strong performance in Asia in the fourth-quarter though U.S. growth was weaker than expected.

The baby formula recall has hit companies including Danone and Nestle NESN.S due to possible contamination with the toxin cereulide, with investors keen to understand the extent of the financial and reputational impact.

"The recall of several industry players at the same time has created some disruption on the shelf," said CFO Juergen Esser, anticipating a one-off impact on first-quarter sales of 0.5%-1% for the group that also makes Activia yoghurt and Volvic water.

Danone, which has recalled products across Europe and the Middle East, said the impact was not material and that an assessment would be finalised once recalls were completed.

The group, whose shares were 0.1% lower by 1112 GMT, is particularly exposed to the formula recall as around 17% of total profits come from infant formula in China, compared with less than 2% for Nestle, Jefferies analysts say.

CHINA 'EXCEPTIONAL', NEED TO 'STEP UP' IN THE U.S.

Since CEO Antoine de Saint-Affrique's appointment in 2021, Danone has been focusing heavily on protein and gut health and seeking to expand its geographic footprint.

Danone gave 2026 guidance in line with its mid-term aims of like-for-like sales growth of 3-5%, with recurring operating income growing faster than sales.

Danone described growth in China, North Asia & Oceania as "exceptional", with sales growth in the fourth quarter of 10.4% led by rapidly increasing volumes, although analysts noted this was below their expectations.

The U.S. market did not meet the company's expectations. "We need to step up our game," Saint-Affrique said, noting that Danone had made leadership changes to address underperformance.

CFO Esser told Reuters Danone had not been "executing with excellence" in the U.S., but said the company was well positioned to benefit from health trends in gut health and protein and the impact on consumption of demand for weight-loss drugs.

"Our categories are growing faster than the average of food and beverage, and now we want to capture that opportunity," Esser said.

Danone's 2025 sales of 27.28 billion euros ($32.07 billion), a like-for-like rise of 4.5%, compared with analysts' expectations of 4.4% in a company-provided consensus. Fourth-quarter sales growth of 4.7% also beat expectations.

Danone grew profit margins, with the recurring operating margin for 2025 at 13.4% from 13% in 2024, in line with expectations. With cash flow of 2.8 billion euros in 2025, above analyst expectations of 2.5 billion, Danone said it planned to raise its dividend by 4.7% to 2.25 euros per share.

($1 = 0.8508 euros)