Danone SA reported faster-than-expected revenue growth as price hikes compensated for a drop in the volume of products sold.
(Bloomberg) — Danone SA reported faster-than-expected revenue growth as price hikes compensated for a drop in the volume of products sold.
Sales rose 6.4% on a like-for-like basis in the second quarter, the French yogurt maker said Wednesday. Analysts expected an increase of 5.7%. The water business grew the fastest out of its three divisions, led by brands such as Evian.
The company said it expects full-year revenue growth in the upper end of its range of 4% to 6% as volumes improve throughout the year. Analysts are forecasting 5.9% growth.
Chief Executive Officer Antoine de Saint-Affrique is approaching the start of his third year leading the company. He’s been trying to turn around Danone by selling or discontinuing underperforming businesses and ramping up innovation. Like other consumer-goods companies, the yogurt maker has struggled with lower volumes as it passes on higher inflation to already stretched consumers.
The business had absorbed more than a third of the effect of inflation through productivity improvements, rather than passing that onto consumers, said Deputy CEO Juergen Esser, who’s in charge of finance. Now that cost increases are coming down, Danone is shifting away from price hikes and toward reinvesting in the business to spur volume growth, he said in an interview.
“We are now shifting to the business model and the financial algorithm we are aiming for,” he said as the company tries to boost profit margins through the reinvestment. “That’s a very, very important moment.”
The stock fell 2.4% in Paris trading. The beat wasn’t as impressive as that of Unilever Plc, which reported Tuesday, wrote Cedric Besnard, a Citi analyst. Danone needs to show in the third quarter that dairy and plant-based foods can keep pricing up without losing volume, he wrote.
That division, Danone’s largest, reported 6.2% like-for-like second-quarter sales growth, beating the analysts consensus. Volume fell 3.3%.
The company is taking an impairment of €200 million ($221 million) related to its Russian business, which it’s deconsolidating from results. That’s on top of a previous €500 million impairment.
Read more: Western Companies in Russia Fear More Asset Grabs by the Kremlin
Last week, Russia seized control of those assets under a decree aimed at companies from “unfriendly” countries. Danone had been trying to leave Russia, and now the business is under “temporary” management under a relative of Chechen leader Ramzan Kadyrov.
Danone said Wednesday while it no longer controls the assets, the French company is their legal owner.
(Updates with deputy CEO comments in fifth, sixth paragraphs)
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