Danone - sales impacted by Covid-19 in Q1

Danone - sales impacted by Covid-19 in Q1

French dairy giant Danone said it will not be providing financial guidance for the rest of this year because of the uncertain economic climate created by the Covid-19 pandemic.

But the company has seen its sales boosted by pantry-loading in the US and Europe.

Reporting its results for Q1, 2020, the Activia and Alpro brands owner said "the current lack of consensus around how the pandemic will develop and when it will end, its mid-term macro-economic consequences, and its impact on people's behaviours and income, adds further complexity to the prediction of the business".

In a statement the company said: "Since we gave 2020 guidance at the end of February, local market policies and initiatives to reduce the transmission of Covid-19 have significantly increased, and half of the global population is today living under lockdown.

"Given the global nature of the Covid-19 pandemic, and the uncertainty around the severity, the duration, and the multitude of its impacts, upside and downside, across our different markets, Danone is not in a position to accurately assess its impact on its 2020 financial performance beyond the initial pantry-loading trends observed in the month of March in Europe and North America. 

"It is likely that there will be significant differences on the impacts, depending on food habits, and lifestyles and the terms of local and national government approaches to lockdown execution and exit.

"This, in combination with the latest foreign-exchange rates fluctuations, leads us to withdraw our guidance on recurring EPS growth, like-for-like sales growth and recurring operating margin for 2020.

"We expect both global supply and demand to be extraordinarily volatile and unpredictable for the rest of the year, with a likely impact on the cost base of the actions taken in order to preserve our people safety and ensure business continuity and product availability, including additional safety, industrial, and transportation costs."

The company reported first-quarter consolidated sales of EUR6.24bn (US$6.76bn), up 1.7% on a reported basis. Danone said like-for-like sales growth of 3.7% reflected a pantry-loading boost in Europe and North America in March which offset "a China downside".

In February, Danone had predicted coronavirus could see the company record a sales loss in Q1 of approximately EUR100m in net sales.  

CEO Emmanuel Faber, who described the company's performance as "resilient", said: "The first quarter of 2020 will long be remembered as the time of an unprecedented pandemic, which may change the way we live and do business for a long time ahead."

He added: "Q2 demand and supply conditions will be broadly and deeply impacted by a global lockdown. Beyond the initial pantry loading trends we observed in March, we are unable to predict how the lockdown may affect both supply and demand, with significant differences depending on food habits and lifestyles and people's income, all in a context of diverse local and national government lockdown strategies and exits, as well as their unknown success rate.

"As a result, the global conditions of both demand and supply will be extraordinarily volatile and unpredictable, as well as the breadth of the mitigation and optimisation actions we will consider and implement, with direct material impacts on our revenues and costs."

Danone said there are two specific short-term business challenges posed by lockdown actions taken by governments in March with respect to Covid-19. 

"Firstly, we need to address significant changes in consumers' buying behaviours, with unprecedented swings in weekly demand accentuated by stocking patterns in the first weeks, the shift from out-of-home to at-home food consumption, as well as shifting preferences to larger pack sizes," it said.

"Secondly, we need to maintain service levels and address the reduced efficiency of the supply chain resulting from distancing requirements, lower productivity, rising transportation costs and other logistics constraints."