Danone's Resilience Shines Through Challenging Times

Danone SA, the renowned French food and beverage company, has weathered the storm of global economic headwinds to deliver a strong performance in the first half of the fiscal year. Despite facing challenges in foreign exchange and the deconsolidation of its Essential Dairy and Plant-based (EDP) business in Russia, the company's effective pricing strategies and volume/mix gains have propelled it to an impressive 11.5% increase in earnings.

Navigating Turbulent Tides with Resilience and Agility

Robust Earnings and Resilient Sales

Danone's net income for the first half of the year reached €1.22 billion (.32 billion), a remarkable increase of 11.5% compared to the same period in the previous year. This translates to €1.89 (.04) per share on the common stock, up from €1.70 per share. While net sales dropped 2.9% to €13.78 billion (.86 billion) from €14.17 billion, the company's like-for-like sales saw a 4% increase, showcasing its ability to adapt and thrive in the face of adversity.

Driving Growth through Volume and Pricing

Danone's CEO, Antoine de Saint-Affrique, highlighted the importance of volume/mix as a key factor in the company's resilience, stating that it contributed 2.1% to net sales growth in the first half of the year, marking the fourth consecutive quarter of progress. Additionally, pricing played a crucial role, contributing 1.9% to net sales growth as inflation slowed down, as anticipated by the company.

Navigating Currency Headwinds and Deconsolidation

The company's Chief Financial Officer, Juergen Esser, acknowledged the negative impact of foreign exchange, which reduced net sales by 2.4% due to the depreciation of various currencies against the euro. However, this was partially offset by the effects of hyperinflation. Furthermore, the deconsolidation of the EDP Russia, Horizon Organic, and Michel & Augustin businesses had a negative scope effect of 7.2%, but Esser noted that this impact will be significantly lower in the second half of the year as the deconsolidation of Russia is now behind the company.

Resilient Performance Across Business Segments

Danone's performance was marked by resilience across its business segments. In the Essential Dairy and Plant-based Protein business, sales fell 9.6% to €6.79 billion (.33 billion), but like-for-like sales increased 3.1%. The Specialized Nutrition segment saw a 3.9% increase in sales to €4.41 billion, with like-for-like sales rising 4.3%, driven by market share gains in China and Europe. The Waters segment also performed well, with sales rising 6% to €2.56 billion and like-for-like sales increasing by the same percentage, buoyed by the strong momentum of the Mizone brand in China and growth in Europe despite challenging weather conditions.

Navigating Challenges in North America

Danone's North America region experienced a 2.5% decline in first-half sales to €3.33 billion, but like-for-like sales increased by 3.7%. The growth in North America was primarily driven by the company's yogurt business, with the high-protein Oikos brand delivering stellar performance. Additionally, the Coffee Creations business, including the International Delight and Stōk brands, continued to gain market share. The company also reported progress in turning around its plant-based beverage business in the US, with pricing actions taken earlier in the year starting to show signs of regaining competitiveness.

Maintaining a Positive Outlook

Despite the challenges faced, Danone has maintained its outlook for the fiscal year, projecting like-for-like sales growth between 3% and 5%. The company's Chief Financial Officer, Juergen Esser, acknowledged that the first half of the year benefited from some carryover effects of pricing from the previous year, which provided additional momentum for the gross margin. However, as pricing normalizes in the coming quarters, the effect on gross margin may not be as significant in the second half of the year.Danone's resilience and agility in navigating the turbulent economic landscape have been instrumental in its ability to deliver a strong performance in the first half of the fiscal year. By leveraging effective pricing strategies, volume/mix gains, and a diversified business portfolio, the company has demonstrated its ability to adapt and thrive, even in the face of challenging global conditions.