French food group Danone stuck to its 2021 guidance despite rising costs and slower sales growth in the third quarter, highlighting the scale of the challenges facing its new chief executive.
The consumer goods giant, owner of Evian and Badoit water and Activia yoghurt, reiterated that it expects its full-year 2021 recurring operating margin to be broadly in line with the 14% achieved last year, banking on productivity gains and pricing to counter inflationary pressures.
"Like just about everyone across the sector and beyond, we see inflationary pressures across the board. What started as increased inflation on material costs evolved into widespread constraints impacting our supply chain in many parts of the world," said finance chief Juergen Esser, adding that Danone has faced cost inflation of about 9% in the second half.
Rising Costs
Rising costs and supply chain issues are further clouding the picture for European consumer staples in 2022, HSBC warned recently, and Danone rival Nestlé last month said it expects even higher input cost inflation in 2022.
Danone posted a 3.8% rise in third-quarter underlying sales to €6.16 billion ($7.2 billion), slightly above the 3.6% expected by analysts.
This, however, marked a sequential slowdown from 6.6% sales growth in the second quarter and reflected a slower recovery in its waters business, where strong restrictions tied to Covid-19 measures weighed on sales in Indonesia.
Mixed Picture
In China, growth in Mizone water sales slowed to a a low single-digit percentage, contrasting with strong performances for Evian, Volvic and Font Vella waters in Europe.
Overall essential dairy and plant-based products delivered sales growth of 4.1%, but the plant-based portfolio in North America was hit by supply and logistics disruptions.
It all serves to focus attention on Antoine de Saint-Affrique, who took over as chief executive in September and faces the challenge of boosting growth across Danone's three businesses — dairy and plant-based milks and yoghurts, baby formula, and bottled water.
Former boss Emmanuel Faber was ousted as chairman and CEO in March after 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 Covid-19 pandemic has further complicated matters for Danone by hitting sales of bottled water sold in bars and restaurants while pushing up costs for transport and raw materials.
De Saint-Affrique is due to detail group strategy at a capital markets day on 8 March.
News by Reuters edited by Donna Ahern, Checkout. For more A Brands stories click here. Click subscribe to sign up for the Checkout print edition.
