Danone Results Rattle the Food Sector

GOOD MORNING. Stocks in Asia closed mostly lower today; U.S. futures are pointing to a lower open.

Danone rattled food stocks and shares overseas when it lowered its guidance at its annual investor event--signaling that even as the global recovery takes hold, optimism for a quick return to consumer spending may be misplaced.

The company confirmed its target for sales growth of about 4% percent in the second half of this year but said it expected medium-term annual growth of at least 5%, down from its previous forecast of 8% to 10%. Danone spokeswoman Marie-Liesse Calmejane told Dow Jones Newswires that medium term is about three years.

Many were expecting management to guide to a range of 6% to 8% growth, so it’s likely to be a disappointment for the market, Sanford Bernstein analyst Andrew Wood, who has an outperform on the stock, wrote. Shares fell more than 5%, marking the biggest decline on France’s CAC 40.

Sure, less growth is clearly a bad thing, but Danone might be pointing at a larger trend in consumer behavior: In addition to cutting out bottled water, yogurt and the other products Danone sells, they may have also changed their behavior. Even as the economy recovers, these new habits will take time to undo. “The world at large has gone, and is still going through, a profound transformational phase which will have a long-lasting impact on society and on consumer behavior in specific," Danone's co-chief operating officer Emmanuel Faber said.

IN OTHER NEWS:

Does the index of leading indicators really forecast the economic future? That may be the question on some investors’ minds when the Conference Board releases its October report at 10 a.m. Analysts expect the index to rise just 0.4% for the month.

The index, which is composed of ten factors, has been rising for six months, most recently posting increases of 0.4% in August and 1.0% in September. Month-to-month fluctuation isn’t as important as the overall trend for the index of leading indicators, says David Wyss, the chief economist at Standard & Poor’s. “A slowdown is fine, you can’t keep going up 1% a month – the important thing is plus instead of minus,” he says.

The Bureau of Economic Analysis reported that the most basic measure of the country’s economy, GDP, turned positive in the third quarter, increasing at an annual rate of 3.5%. The question facing economists now isn’t whether the economy is recovering, but how strongly it’s snapping back. Data on building permits, new orders for consumer goods, and consumer expectations seem to be pointing towards a relatively weak recovery, while indicators including stock prices, real money supply, interest rate spread, and even jobless claims are pointing to a strong recovery, says John Canally, an economist at LPL Financial.

It’s possible that the index of leading indicators isn’t well-suited to measure recovery from this recession, which has been unusually long and dominated by construction as opposed to manufacturing, Wyss says. If the economy bottomed out in August, we should be seeing improvement in the job picture by now, he says. Today’s report should continue the index’s upward trend, but investors will have to wait and see how quickly the economy follows its lead.