Danone plans further price increases despite growth

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Danone plans further price increases despite growth

February 23, 2022

Company’s new CEO promises to tackle ‘unbalanced’ growth model

Danone on Wednesday promised further productivity gains and price increases this year to offset cost inflation after the French food maker beat its fourth-quarter sales forecast, sending its shares up nearly 4% , reported Reuters.

Antoine de Saint-Affrique, who took over as chief executive of the world’s biggest yogurt maker in September, told investors that despite a strong end to the year, there was still a lot of work to do to turn the business around.

He said he would provide hints on his strategy and outlook for 2022 and the medium term during a capital market day on March 8.

Among the areas for improvement was a “somewhat unbalanced” growth model that did not allow Danone, owner of the Evian and Activia yogurt brands to “capture the full potential of its markets”.

There was also a need to improve “execution quality” and step up investment behind the brands, Saint-Affrique said.

Consumer goods companies are grappling with soaring costs for raw materials, energy, transport and labour, prompting rival Unilever earlier this month to implement guard against declining margins as it strives to raise prices enough to offset the additional expenses.

Cost inflation of 8% in 2021 is expected to be in the low to medium range in 2022, chief financial officer Juergen Esser told analysts. He said inflation would be widespread, driven by commodity prices, logistics rates, energy prices, with the biggest impact coming from packaging costs.

As of 1020 GMT, Danone shares were up 3.7% at 56.60 euros after the pace of sales, which was largely driven by a continued recovery in its bottled water business as the countries were easing COVID restrictions.

“The fourth quarter is ahead of the top line with margins for FY21 on-line. The question remains whether or not new CEO Antoine de Saint-Affrique will perform a margin reset,” said the Jefferies analysts in a note.

Former Danone boss Emmanuel Faber was abruptly ousted as chief executive officer last year following clashes with some board members over strategy and fundraising activists for him to quit due to the group’s lackluster performance compared to some rivals.

The main challenge for Saint-Affrique is to increase profit margins and sales of the group’s three businesses – dairy and plant-based products, infant formula and bottled water – while dealing with rising input costs. , with the added stress of a conflict in Ukraine.

Danone said its 2021 like-for-like sales rose 3.4% to 24.281 billion euros ($27.48 billion), slightly above analysts’ estimates in a consensus compiled by the company. for a 3% increase.

He said that reflected an acceleration in the fourth quarter with sales growth of 6.7%, beating market expectations of 5.5% growth, with all three companies contributing.

Most of the sales increase came from the bottled water division, which posted a 17.4% increase in sales. The division, whose sales had been penalized by restaurant and bar closures linked to pandemic restrictions, continued its recovery with the Mizone and Aqua brands returning to positive growth in Asia.

Baby Nutrition also posted very strong growth over the quarter, driven by China and the rest of the world.

2021 operating margin decreased 30 basis points to 13.7% of sales, in line with company outlook and analyst expectations of 13.7%, as accelerating sales growth and strong productivity partially offset inflationary pressures.

Source: Reuters





Richard L. Militello