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1. Like-for-Like Sales Growth: 4.7% in Q4, leading to 4.3% for the full year 2024.

2. Operating Margin: Increased by 39 basis points to 13% in 2024.

3. EPS Growth: 2.5% increase, reaching EUR3.63 in 2024.

4. Free Cash Flow: EUR3 billion, a 14% increase from the previous year.

5. Net Debt: Reduced to EUR8.6 billion, with a leverage ratio of 1.9 times.

6. ROIC: Returned to double digits at 10%.

7. Dividend Proposal: EUR2.15 per share, maintaining a payout ratio of 59%.

8. Regional Performance:

   • Europe: 1.7% like-for-like sales growth, operating margin up 48 bps to 11.9%.

   • North America: 5.2% like-for-like sales growth, operating margin up 124 bps to 11.4%.

   • China, North Asia, and Oceania: 8% like-for-like sales growth, operating margin slightly down to 29.4%.

   • Latin America: 4.2% like-for-like sales growth, margin down 68 bps due to hyperinflation impacts.

   • EMEA: 5.7% like-for-like sales growth, operating margin steady at 10.4%.

   • Warning! GuruFocus has detected 7 Warning Sign with DANOY.

   Release Date: February 26, 2025

   For the complete transcript of the earnings call, please refer to the full earnings call transcript.

   Positive Points

   • Danone SA (DANOY) reported a strong like-for-like sales growth of 4.7% in Q4, leading to a 4.3% growth for the full year 2024.

   • The company increased its operating margin by 39 basis points to 13%, demonstrating effective financial discipline.

   • Danone SA (DANOY) achieved a record free cash flow of EUR3 billion, aided by strong working capital management.

   • The company returned to double-digit ROIC territory with a 110 basis point increase over two years.

   • Danone SA (DANOY) saw double-digit growth in its winning platforms, including high protein, coffee creation, and medical nutrition.

   Negative Points

   • The company faced a negative impact from foreign exchange and scope changes, resulting in a 0.9% decrease in reported sales for 2024.

   • Emerging market margins were weaker than expected, partly due to cost of goods sold and raw material inflation.

   • Danone SA (DANOY) experienced a temporary negative pricing impact in specialized nutrition in China due to rapid distribution expansion.

   • The company is not yet structurally a EUR3 billion free cash flow company, indicating potential volatility in future cash flow.

   • Despite improvements, the European EDP segment showed flat organic growth in Q4, with ongoing challenges in certain markets.

   Q & A Highlights

   Q: What is Danone's outlook on raw material costs and pricing for 2025, and why did specialized nutrition pricing turn negative in Q4? A: Antoine de Saint-Affrique, CEO, explained that Danone anticipates a return to normal levels of inflation in 2025, driven mainly by milk and packaging costs. Pricing will be targeted and consumer-led, focusing on products with differentiated benefits. Juergen Esser, CFO, added that the negative pricing in specialized nutrition was due to a temporary impact from launching the Sensus range in China, which will normalize in 2025.

   Q: How does Danone plan to manage its increasing reinvestment levels, and what are the key areas of focus? A: Antoine de Saint-Affrique, CEO, stated that reinvestment focuses on media, capabilities, and R&D. The company aims to align its share of voice with its market share and improve investment efficiency. Investments in science, particularly in protein and microbiomes, and in data and IT, are crucial for long-term growth.

   Q: Can you provide insights into Danone's free cash flow expectations and the momentum of Q4 sales growth into Q1? A: Juergen Esser, CFO, highlighted that while Danone achieved a record EUR3 billion free cash flow in 2024, they are not yet a structural EUR3 billion company. The focus remains on increasing absolute earnings and maintaining working capital contributions. Antoine de Saint-Affrique, CEO, noted that while they don't provide quarterly guidance, the trends in North America, particularly in high-protein yogurt, are promising.

   Q: What is the status of Danone's North America EDP business, particularly in high protein and plant-based segments? A: Antoine de Saint-Affrique, CEO, reported strong performance in high-protein yogurt, driven by trends like GLP-1 usage. The plant-based segment is stabilizing but not yet at desired levels. The company is focusing on improving its kids' range and Silk brand.

   Q: How is Danone approaching M&A, and what are the priorities for using free cash flow? A: Antoine de Saint-Affrique, CEO, emphasized a strategic approach to M&A, focusing on improving market positions and acquiring capabilities that align with Danone's mission of health through food. The company aims to maintain a double-digit ROIC and is actively exploring opportunities in specialized nutrition and other areas where science can make a difference.

   For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.