CFO Pierre-Andre Terisse said today (14 April) that the manufacturer has decided to discontinue a number of SKUs that contribute around 3% of sales to refocus its energies on what he described as its “golden” SKUs. These lines account for some 60% of sales and around 10% of SKUs.
He said that while it was “difficult to quantify” the amount of work completed on the SKU reductions, which are set to be completed in the second quarter, he estimated that around 50% of the work has already been completed.
Terisse lauded the recently acquired division, saying that it is “supplying growth which is higher than expected” despite volumes being down – due to the pricing environment and the SKU reductions. He attributed the growth in value to consumers trading up to more premium products.
Speaking about the operations, which Danone acquired late last year, Terisse said that Danone’s team took over the management of the division in the middle of February and have since passed on a price increase, which was “necessary, considering the price of milk”.
The statements came as the group recorded a “very strong” first quarter, reporting 19.6% net sales growth to reach EUR4.7bn (US$6.78bn).
Describing commodity cost growth, Terisse said that, during February, Danone saw the cost of milk double in Russia.
However, on a consolidated basis, Terisse confirmed that Danone would not be changing its guidance on how much its input costs would rise in 2011. Danone is forecasting an increase of 6-9% on average but Terisse said that it is, in reality, “closer to the top than the middle or the bottom”.
He said that looking at the trends within the quarter, Danone has seen oil and therefore PET prices increase sharply. Also, the manufacturer has seen an increase in the cost of milk, “which has again gone to the top of the guidance”, although he added that prices have begun to stabilise in recent weeks following a sharper increase at the beginning of the quarter.
In its dairy division, Danone has already pushed through price increases in France, Germany, Poland and Russia, with increases to come in other countries in the coming quarters. Terisse said that when it makes pricing increases, it does so while remaining competitive within the market.
Excluding Unimilk, Terisse said that its dairy business grew sales by 5.5% over the quarter against a “tough basis of comparison”. He said the performance was “in line” with the fourth quarter, which confirms that there is “no boom and bust effect as some of you may have feared as a result of the reset”.
He emphasised the “particularly strong performance” in Argentina, Mexico and Brazil, which grew in the “high teens”, while the US recorded growth in the teens, which he said was “within the target we have set in this country”, adding that the manufacturer is preparing to launch more products in the US during the latter half of the year.
In western Europe, Terisse said all divisions aside from Spain recorded positive growth, but that negative trends in that market are improving with the launch of a “few different initiatives”.
In Japan, Terisse said that production in Danone’s facilities was interrupted by the earthquake but was resumed at the beginning of April. He said that the situation in the country has impacted sales, but that it is working to get back up to previous levels “as soon as possible”. He said that the earthquake will impact the business by some EUR10m across its water and dairy divisions with margin to be down by 30bps for the full year.
However, he added that he expects this decrease to be compensated by top-line dynamics which are “very reassuring over all”, reaffirming that sales growth is at the “top of the range” it forecast at the start of the year.