Danone forecasts continued growth amid strategic pricing adjustments

FRANCE  – Danone, France-based dairy giant, has projected sustained growth in the latter half of the year despite the necessity for further price adjustments based on a solid performance in the first half, highlighted by robust sales and improved gross margins.

In their recent discussion with analysts, CEO Antoine de Saint-Affrique and CFO Juergen Esser they conveyed confidence in maintaining this positive trajectory, albeit at a moderated pace.

Esser emphasized that while pricing will stabilize in the coming quarters, the impact on gross margins may not replicate the magnitude of the first half. Nevertheless, Danone is nearing the 50% gross margin mark achieved in previous years.

“With pricing normalizing in the coming quarters, the effect on gross margin will not repeat with the same magnitude in the coming second half,” he said.

In the first six months, Danone reported a significant 257 basis points increase in gross margin to 49.4%, with like-for-like (LFL) sales revenue growing by 4% to €14.2 billion (US$15.3 billion). The group’s volume-mix improved by 2.1%, and pricing saw a 2% increase.

Esser highlighted the company’s satisfaction with the gross margin expansion, attributing it to a robust business model focused on quality top-line growth and operational leverage.

Looking ahead, he affirmed that gross margins would continue to grow, though not at the accelerated rate observed in the first half, due to some commodity price rebounds.

The regional performance also showed promising trends. Europe reported a 1.7% LFL sales growth in the first half despite a slight volume-mix increase of 0.1% caused by short-term delivery disruptions from price negotiations with retailers.

These negotiations have now concluded, allowing Danone to refocus on category growth with retail partners.

In North America, LFL sales rose by 3.7%, with a volume-mix increase of 2.9%. The China, North Asia, and Oceania regions led the growth with LFL sales and volume-mix increases of 8.6% and 8.3%, respectively.

The rest of the world region saw 5.6% sales growth and a 1.4% volume-mix increase, while Latin America posted a 4.6% sales growth but a slight decline in volume-mix by 0.2%.

Esser acknowledged the volatility in the global market but expressed confidence in the company’s growth trajectory. He emphasized that Danone’s strategy of reinvesting to solidify growth momentum is critical for the year’s second half and beyond.

Danone maintains its full-year LFL sales growth guidance at 3-5%, with a moderate improvement in the recurring operating margin, which increased by 45 basis points to 12.24% in the first half.

Esser elaborated on the selective pricing strategy, particularly in Europe, to ensure consumer-led pricing that leverages solid brands and market innovations.