Danone Faces Steady Decline in Returns Despite Growth in Earnings
Danone (EPA:BN), one of the major players in the global food and beverage sector, is showing signs of concern for long-term investors, as its returns on capital employed (ROCE) have notably declined over the past five years, according to recent financial analysis.
ROCE—a key measure of a company’s profitability and capital efficiency—has dropped from 10% to 7.9% since 2018. While this figure is still in line with industry averages, the downward trend suggests Danone may be losing some edge in deploying its capital effectively, a red flag for value-driven FMCG stakeholders.
What’s particularly noteworthy is that this decline comes in spite of an 18% increase in the company’s capital employed over the same period. Yet, earnings before interest and tax (EBIT) are down 5.4%, highlighting inefficiency in converting additional investment into productive output. In essence, even though the company is spending more to expand or maintain operations, it’s generating less profit from that outlay.
From a balance sheet perspective, the company’s use of debt has also increased, with liabilities making up 41% of its capital employed. This indicates that Danone is leaning more heavily on leverage, which can magnify returns in good times but increase risk when profitability is under pressure.
For FMCG professionals, this trend underscores a potential plateau in operational efficiency at a time when agility and return on innovation are paramount. While the company’s reinvestment strategy continues, declining ROCE and EBIT suggest it may not be pulling the right operational levers to unlock meaningful value from its investments.
Investors and market watchers in the FMCG space will be closely monitoring Danone’s strategic moves moving forward—particularly how it addresses capital deployment and operational enhancements to reverse this weakening trend. With mounting pressure to drive sustainable growth and shareholder returns, the coming quarters could prove pivotal for the French multinational.