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April 21, 2022

Danone mulling further pricing actions as inflationary pressures bite

The company told analysts input cost inflation remains a key point of focus.

By Andy Coyne

Danone has not ruled out taking further action on pricing as it seeks to cope with ongoing input cost inflation.

The Alpro and Activia brands owner – reported yesterday (20 April) in France to be of potential takeover interest from local peer Lactalis – has already upped product prices in North America and is now rolling out hikes in Europe.

After Danone published its first-quarter sales yesterday, CFO Juergen Esser told analysts “remains a key point of focus” for the dairy and infant-formula group.

The company has not changed its 2022 guidance on inflation from the mid-teens estimate provided at its recent capital markets day. However, it admitted it is still actively trying to dampen down cost pressures.

Esser said: “We have been activating the full playbook of mitigation actions.”

He added: “We have passed price increases across all our categories and geographies. In some geographies, we have passed several price increases. We are continuously monitoring the situation and preparing ourselves for further pricing rounds should we need to.”

Esser described pressure on costs as “broad-based inflation from milk and other ingredients, packaging materials, manufacturing and transportation”. He added Danone has also seen “a lot of volatility in global commodity markets”.

He admitted that there are a number of markets where “the macro-economic environment is more complex” where pricing initiatives have had an impact on volume, mentioning Turkey as one example.

However, Esser told analysts that supply chain issues are improving.

“We are still facing supply chain challenges in North America although the situation seems to be stabilising,” he said and also pointed to an improving picture in Spain where it has had to cope with a hauliers’ strike.

“There has been an improvement in Spain in the last couple of weeks and we are seeing customer service levels coming back,” he said.

But he warned: “Recent city lockdowns in China may not help with the global supply chain so we are monitoring that.”

In the first quarter of 2022, Danone saw its net sales rise by 7.1% to EUR6.23bn (US$6.74bn), compared with consensus expectations among analysts of a 5.5% rise.

Describing the opening three months as a “good start” to 2022, Esser said: “In line with our Renew Danone approach, we are putting greater focus on the quality of our execution, supported by pricing and mix management as well as sustained productivity efforts.”

The company’s Europe division posted sales growth of 5.7% on a like-for-like basis. This performance was led by specialised nutrition, which registered high-single digit growth on last year’s low base. EDP [essential dairy and plant] “delivered a soft quarter”, with plant-based growing low single-digit and dairy posting flat growth.

In North America, sales increased by 5.5% on a like-for-like basis.

Danone said: “Growth was driven by all categories, despite sustained supply challenges, with a continued strong momentum in yogurt led by Oikos, Two Good, Activia and Danimals, and a particularly strong quarter in Coffee Creamers, led by International Delight.”

Plant-based grew mid-single digits.

China, North Asia & Oceania sales increased by 15.3% on a like-for-like basis with infant milk nutrition posting mid-teens growth, benefiting from a low base of comparison.

Rest of the World sales increased by 7.0% on a like-for-like basis. Latin America posted mid-single digit growth, led by Mexico, where EDP delivered “strong” mid-single digit growth.

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