France’s Danone raises sales outlook despite hiking prices

Danone (DANO.PA) raised its annual revenue growth forecast after its second-quarter sales beat analysts’ estimates on strong demand for baby food and bottled water, even as the company raised prices to mitigate higher costs.

Danone, whose brands include Evian and Badoit water, Activia yoghurt and Aptamil baby formula, said it now expects like-for-like sales to grow at 5%-6% in 2022 compared with a previous forecast of 3%-5%.

CEO Antoine de Saint-Affrique, who took over in September 2021, faces mounting costs and uncertainties in the supply chain caused by Russia’s invasion of Ukraine.

The company said its first-half recurring operating margin declined to 12.1% from 13.1% in the first half of 2021 due to higher input costs. It expects a full-year margin above 12% compared with 13.7% in 2021.

Finance chief Juergen Esser said that with cost inflation expected to remain in “the mid-teens” this year, Danone would tackle this by stepping up productivity which topped 5% in the first half.

Price increases contributed 6.1% to second quarter revenue growth. Danone would continue to raise prices prices whenever it can but had to walk a fine line between protecting its business against inflation and not “pricing ourselves out of the market,” CEO Saint-Affrique said.

A highlight of the strong quarterly performance was an 11.4% jump in sales in the nutrition business, which includes infant milk formula and medical nutrition.

In the key Chinese market, infant milk formula posted mid-to-high single-digit growth.

In North America, Danone stepped up exports of Neocate formula and Aptamil baby formula to address shortages.

Top manufacturer Abbott Laboratories (ABT.N) in February recalled dozens of types of its formulas, creating one of the most urgent food shortages in recent history for U.S. families.

One negative however, was the Mizone water business in China, which saw its sales decline sharply, hit by lockdowns across the country.

By 0834 GMT Danone shares were off 0.34% at 54.80 euros.

“Danone reads like a re-run of Unilever with pricing surprising on the upside but input cost inflation keeping margins in with expectations. The good news story is continued strong China Infant Milk Formula,” Jefferies analysts said.

Unilever Plc (ULVR.L) on Tuesday raised its full-year sales guidance after beating first-half underlying sales forecasts as the maker of Dove soap and Knorr stock cubes hiked prices to counter soaring costs.

Danone’s quarterly like-for-like sales growth of 7.7% compared with analysts’ estimates of 5.6% growth.