by Dominique Vidalon
PARIS (Reuters) – Danone revised its full-year sales forecast upwards on Wednesday after sales beat expectations in the second quarter, driven by strong demand for baby food and bottled water, even though the group increased its prices in the face of cost inflation.
The French agri-food group, owner of the Evian, Badoit and Activia brands in particular, now forecasts growth in its turnover of between 5% and 6% on a like-for-like basis in 2022, against a previous range of 3% to 5%.
After opening sharply higher, the title only gained 0.25% around 07:45 GMT on the Paris Stock Exchange, whose star index CAC 40 took 0.4% at the same time.
The strong performance in the second quarter reflects good momentum across all geographies and product categories, including an 11.4% sales jump in the Specialized Nutrition division, which includes baby milk and medical nutrition.
On the essential Chinese market alone, sales of infant milk grew between 5% and 10% “with resilient market shares for domestic labels as well as for international labels”.
In North America, Danone increased its exports of Neocate pediatric solutions and Aptamil infant milk to help the United States deal with a serious shortage caused by production problems at Abbott Laboratories.
In total, the group’s sales rose 7.7% like-for-like in the second quarter, against growth of 5.6% expected by analysts.
THE OPERATING MARGIN DECREASES COMPARED TO 2021
“While the quality of our first half is encouraging, (…) it is only the beginning of our Renew transformation: we still have a lot to do to restore Danone to the place it should be, and to deliver to both our mission and our ambition for performance”, declared the general manager, Antoine de Saint-Affrique, quoted in a press release.
The latter, who took office in September 2021, must carry out a recovery plan despite inflation in production costs, to which are added new uncertainties linked to the war in Ukraine which forced the French group to suspend its investments in Russia.
If the rise in prices inflates its revenues, it also weighs on its costs and the current operating margin fell to 12.1% in the first half against 13.1% in the first six months of 2021.
Danone, the world’s leading yogurt manufacturer, is thus maintaining its target of a current operating margin above 12% this year, against 13.7% last year.
“Danone reads like a repeat of Unilever with a surprise on rising prices but inflation in production costs that keep margins in line with expectations. The good news is the continued strength of infant formula in China” , Jefferies analysts commented.
Unilever raised its full-year revenue forecast on Tuesday after better-than-expected sales in the first half as the group raised prices to counter soaring costs.
(Report Dominique Vidalon, French version Bertrand Boucey, edited by Kate Entringer and Jean-Michel Bélot)
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