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Food group Danone raises 2022 outlook as third-quarter sales beat expectations
Global Banking & Finance Review®
Company
By Dominique Vidalon
PARIS (Reuters) – French food group Danone on Thursday raised its 2022 revenue growth forecast after its third-quarter sales beat analysts’ estimates as the firm was able to raise prices to counter soaring costs.
The consumer goods giant and owner of Evian and Badoit water and Activia yoghurt said it now expected like-for-like sales growth to reach 7-8% this year compared with the already raised forecast of 5-6% it gave in July.
It said it expects a recurring operating margin above 12%, down from 13.7% last year.
Danone posted a 9.5% rise in third-quarter like-for-like sales to 7.334 billion euros ($7.35 billion), beating analysts’ expectations for a 6.9% rise in a poll compiled by the company.
This also marked a sequential acceleration from 7.7% sales growth achieved in the second quarter and reflected strength in all the group’s businesses, notably in baby food in China and in bottled waters.
CEO Antoine de Saint-Affrique, who took over in September 2021, must conduct a revival plan amid mounting input costs, coupled with further uncertainties caused by Russia’s invasion of Ukraine, which led the group to unveil plans to shed control of its dairy food business in Russia.
Price increases contributed 10.9% to third-quarter revenue growth.
Finance chief Juergen Esser reiterated that cost inflation was expected to be in the “mid-teens” this year but said it was hard to make predictions for 2023.
While Danone was conscious that consumer wallets are tightening, Esser said: “If we need to do more on prices, we will do it in a responsible manner even if it costs us a little bit of volume”.
In the third quarter, the closely-watched Essential Dairy and Plant-based (EDP) business in Europe registered 2.2% sales growth with a contrasted performance by geography.
Sales and volumes were impacted by portfolio choices, namely the pruning of underperforming brands, and temporary delivery suspensions in some countries such as Germany and Belgium due to lengthy price negotiations with retailers, Esser said.
Other countries like France, benefited from the good momentum of key brands like Actimel, Danone, Yopro and Danette.
One positive was the Mizone water business in China which returned to growth in the quarter despite challenging operating conditions.
Rival Unilever Plc also on Thursday raised its full-year sales forecast as it lifted prices to counter costs.
($1 = 0.9974 euros)
(Reporting by Dominique Vidalon; Editing by Mark Porter, Kirsten Donovan)
Revenue growth refers to the increase in a company's sales over a specific period, often expressed as a percentage. It indicates how well a company is performing in generating income.
A recurring operating margin is a measure of a company's profitability, calculated by dividing its operating income by its total revenue. It reflects the efficiency of the company's core business operations.
Like-for-like sales growth compares the sales performance of a company over time, excluding the effects of new stores or closures. This metric helps assess the true growth of existing operations.
Input costs are the expenses incurred by a company to produce goods or services, including raw materials, labor, and overhead. Rising input costs can impact profitability.
A revival plan is a strategic approach implemented by a company to improve its financial performance and operational efficiency, often in response to declining sales or profitability.
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