Danone today (18 October) reported slowing like-for-like sales growth in the third quarter as “short-term volatility” at its Chinese infant nutrition business weighed on the result.
The French group’s like-for-like sales in the third quarter rose 2.1%, compared to like-for -ike growth in the year-to-date of 3.2%. CEO Emmanuel Faber said challenges in China had created “volatility” in the market, “negatively impacting our sales growth in Q3”.
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Danone’s early life nutrition division reported a 1.7% like-for-like rise in sales, reflecting a 0.4% fall in volume and a 2.1 percentage point contribution from price and mix. “It mostly reflected a decline in so-called indirect sales to China. When these are excluded, division growth comes in at a mid-single digit,” Danone noted.
On China, Danone continued: “The transition of the indirect channel, induced by a fast-changing regulatory environment, is creating short-term volatility via active destocking by traders. In a category marked by rapid distribution channel shifts and stock adjustments, the impact of the indirect channel’s transition will continue until the new regulations are fully enforced.”
The company’s waters unit also hit trouble in China. Danone’s waters business booked a 0.1% drop in comparable sales, with Danone citing a decline in China.
In fresh dairy, like-for-like sales increased 2.2%, supported by its continued “transformation” in Europe, expansion in the US and an increase in price/mix, which offset volume pressure in Russia.
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By GlobalDataMedical nutrition was Danone’s fastest-growing business, with growth across all regions lifting the division’s comparable sales by 9.7%.
Sanford Bernstein analyst Andrew Wood said he had been expecting a “subdued” third quarter performance, but that Danone’s numbers missed “lowered expectations”.
Management nevertheless reiterated Danone’s full-year outlook for sales growth of 3-5% and improvements in operating margins.
