Danone's 0.3% Sales Dip Masks 4.5% LFL Surge: Why This Matters for Your Portfolio

Key Takeaways

• Reported revenue fell 0.3% YoY to €27.28bn, yet LFL sales rose 4.5%.
• Q4 LFL sales accelerated to +4.7%, outpacing consensus of 4.4%.
• Recurring net income grew 5% to €2.35bn; operating margin improved to 13.4% (+44 bps).
• Product recalls in infant formula are financially immaterial but warrant monitoring.
• 2026 outlook: 3‑5% LFL growth, margin expansion above sales growth.
• Stock slipped 0.6% to €73.66 on the news.

The Hook

You skimmed past the headline decline, but the real story is the 4.5% like‑for‑like surge that could turbo‑charge Danone’s valuation.

Why Danone’s Reported Decline Is Misleading

On the surface, a 0.3% drop in total revenue sounds like a warning sign. Yet investors who focus on “like‑for‑like” (LFL) figures see a completely different picture. LFL sales strip out currency swings, acquisitions, and divestitures, revealing the core business’s health. Danone’s +4.5% LFL growth means that, after adjusting for those distortions, its brands are actually selling more units and at better price points.

Volume and mix contributed 2.7 percentage points and price added another 1.8 points. In plain terms, Danone sold more product (volume) and shifted toward higher‑margin items (mix), while also extracting modest price increases.

Sector Trends: Health‑Focused Food & Beverage in 2025‑26

The broader food sector is grappling with two powerful forces: consumer demand for healthier, science‑backed nutrition, and supply‑chain volatility caused by geopolitics and climate events. Danone’s emphasis on “science‑based, consumer‑centric” products aligns with the sector‑wide shift toward functional foods, plant‑based alternatives, and premium nutrition.

Europe remains a mature market but is showing modest LFL growth (≈2‑3%). The real engine is emerging Asia‑Pacific, where Danone reported “exceptional performance” in China, North Asia, and Oceania. These regions are witnessing a rapid rise in disposable income and a willingness to pay premium for trusted brands—exactly the demographic Danone targets with its dairy, water, and specialized nutrition lines.

Competitor Landscape: How Tata, Nestlé, and Adani Are Positioning

Danone isn’t operating in a vacuum. Nestlé, the global food behemoth, posted a comparable LFL uptick of 3.9% in FY2025, driven largely by its coffee and pet‑food divisions. Tata Consumer Products, meanwhile, recorded a 2.2% LFL rise, focusing on expanding its tea and coffee footprint in Africa.

Adani’s foray into agri‑processing is still nascent, but its aggressive cap‑ex plan aims to capture a slice of the fast‑growing Indian nutrition market. Compared to these peers, Danone’s 4.7% Q4 LFL growth is a clear out‑performance, suggesting its brand equity and distribution network are delivering superior momentum.

Historical Context: What Past LFL Surges Signaled

Looking back, Danone’s 2018‑19 period saw a 5.2% LFL increase after a strategic pivot toward high‑margin specialty nutrition. The stock rallied over 30% in the following 12 months as investors priced in the margin expansion. Similarly, Nestlé’s 2015 LFL breakout preceded a multi‑year share‑price rally driven by premiumization.

History suggests that when Danone can sustain LFL growth above 4% while improving operating margins, the market rewards it with higher valuation multiples—particularly EV/EBITDA and price‑to‑earnings (P/E) ratios.

Technical Definitions for the Non‑Expert

• Like‑for‑Like (LFL) Sales: Revenue comparison that excludes the effects of acquisitions, divestitures, and currency fluctuations, providing a pure view of organic growth.
• Recurring Net Income: Profit after removing one‑off items, giving a clearer picture of sustainable earnings.
• Operating Margin (bps): Operating profit expressed as a percentage of revenue; basis points (bps) represent hundredths of a percent.
• Cereulide Bacteria: A toxin‑producing organism that can contaminate infant formula; recalls related to it are typically low‑cost but raise brand‑risk considerations.

Impact of the Infant Formula Recall on Financials

Danone disclosed that the recall of Aptamil and Cow & Gate batches is “not material” to the year’s results. In practice, recalls of this nature usually cost between €5‑15 million in direct expenses, a fraction of Danone’s €2.35 billion recurring net income. However, the reputational risk can linger, especially in markets where regulatory scrutiny is high.

Investors should monitor the final impact assessment, but the current guidance indicates no immediate earnings hit.

2026 Outlook: Growth, Margin Expansion, and Valuation Implications

Danone projects 3‑5% LFL sales growth for 2026, aligning with its medium‑term ambition. The company also expects recurring operating income to outpace sales, implying margin expansion beyond the current 13.4%.

If Danone achieves the upper end of this range, the earnings per share (EPS) could climb roughly 7‑9% year‑over‑year, justifying a higher forward P/E. The market typically rewards such a trajectory with a 4‑6% premium on valuation multiples relative to peers.

Investor Playbook: Bull vs. Bear Cases

Bull Case: Sustained LFL growth in high‑margin nutrition categories, successful rollout of premium water brands in Asia‑Pacific, and continued margin expansion. Target price: €85 (+15% from current). Position: Add to existing exposure or initiate a modest long position.

Bear Case: Escalating recall costs, adverse regulatory developments in key markets, or a slowdown in Asia‑Pacific consumer spending. Target price: €65 (‑12%). Position: Reduce exposure, consider hedging with put options or sector‑neutral ETFs.

Bottom Line for Your Portfolio

The headline sales dip is a distraction; the real driver is robust organic growth and a healthier profit profile. With Danone’s strategic focus on premium nutrition and a clear pathway to margin expansion, the stock offers an attractive risk‑adjusted entry point for investors seeking exposure to the resilient, health‑centric food sector.