Danone plans further price hikes to offset cost inflation

By Dominique Vidalon

PARIS (Reuters) -Danone on Wednesday pledged further productivity gains and price increases this year to offset cost inflation after the French food maker beat fourth-quarter sales forecasts, driving its shares up nearly 4%.

Antoine de Saint-Affrique, who took over as chief executive of the world’s largest yoghurt maker in September, told investors that despite a strong end of the year, much remained to be done to turn the company around.

He said he would provide clues on his strategy and outlook for 2022 and the mid-term at a March 8 Capital Market Day.

Areas for improvement included a “somewhat unbalanced” growth model that did not allow Danone, owner of the Evian and Activia yoghurt brands to “fully capture the potential of its markets”.

There was also a need to improve “quality of execution” and to step up investment behind brands, Saint-Affrique said.

Consumer goods companies are grappling with surging costs for commodities, energy, transport and labour, prompting rival Unilever earlier this month to warn of a drop in margins as it struggles to lift prices enough to offset the extra expenses.

Cost inflation of 8% in 2021 was expected to be in a low to mid-teens range in 2022, finance chief Juergen Esser told analysts. He said inflation would be broad-based, driven by raw materials prices, logistics rates, energy prices, with the strongest impact coming from packaging costs.

By 1020 GMT, Danone shares were up 3.7% at 56.60 euros after the sales beat, which was driven largely by a continuing recovery in its bottled water business as countries relaxed COVID restrictions.

“Q4 is ahead on the top line with FY 21 margins in line. The question remains one of whether new CEO Antoine de Saint-Affrique will take a margin reset, or not,” Jefferies analysts said in a note.

Water and baby food

Former Danone boss Emmanuel Faber was abruptly ousted as chairman and CEO last year following clashes with some board members over strategy and calls from activist funds for him to resign over the group’s lacklustre returns compared with some rivals.

The main challenge for Saint-Affrique is to boost profit margins and sales across the group’s three businesses – dairy and plant-based products, infant formula and bottled water – while facing mounting input costs, with the further stress of a conflict in Ukraine.

Danone reported that its 2021 like-for-like sales rose 3.4% to 24.281 billion euros ($27.48 billion), slightly above analysts’ estimates in a company-compiled consensus for a 3% rise.

It said this reflected an acceleration in the fourth quarter to 6.7% sales growth, above market expectations of 5.5% growth, with all three businesses contributing.

Most of the sales beat came from the bottled water division, which posted a 17.4% jump in sales. The division, whose sales had been hit by restaurant and bar closures tied to pandemic restrictions continued its recovery with the Mizone and Aqua brands returning to positive growth in Asia.

Infant Nutrition also posted very strong growth in the quarter, driven by China and the rest of the world.

The 2021 operating margin declined by 30 basis points to 13.7% of sales, in line with the company’s outlook and analysts’ expectations of 13.7%, as accelerating sales growth and strong productivity helped partly offset inflationary pressure.

($1 = 0.8837 euros)

(Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta, Sherry Jacob-Phillips and Emelia Sithole-Matarise)