PARIS – In early March, Danone SA announced the results of a strategic review that showed how the business was underperforming in key markets. The company’s first-quarter results indicate the strategy developed to reinvigorate the business may be working.
First-quarter sales for the period ended March 31 rose 7.1% to €6,236 million ($6,770 million) and was supported by pricing, volume and mix. Pricing action had a 4.9% impact on sales while volume and mix made up 2.2%.
In Europe, Danone’s largest market, sales rose 5.7% to €2,114 million ($2,293 million).
“From a category perspective, this strong performance was led by Specialized Nutrition, which registered high single-digit growth, thanks to an increasing level of demand from customers and consumers,” said Juergen Esser, chief financial, technology and data officer, during an April 20 conference call with securities analysts. “The Waters category grew again double digit also in this quarter, confirming its sequential recovery with great market share performances, especially of the Evian but also the Volvic brands. While EDP (Essential Dairy and Plant-Based Products) delivered a softer Q1 with plant-based growing low single digit and dairy in flattish territories on the elevated demand basis of Q1 2020 and 2021 while being exposed to continued supply chain challenges.”
North America sales rose 5.5% and reached €1,477 million ($1,602 million).
“In North America, we are still facing supply chain challenges,” Mr. Esser said. “Although the situation seemed to start stabilizing as service levels have been improving throughout the quarter, bringing us sequentially back to a more competitive situation.”
In the conventional yogurt category, brands like Oikos, Two Good, Activia and Danimals showed strong sales while plant-based growth was driven by adjacencies in categories like yogurt, creamers and cheese, according to the company.
“While on plant-based beverages, we have seen an improved momentum in both growth and competitiveness,” Mr. Esser said. “Both almond and soy delivered good growth and gained market shares in their respective segments, while oat delivered strong double-digit growth.”
Mr. Esser said the plant-based market in Europe is a “mixed bag,” noting that the company is constrained by several supply chain challenges. He said he sees the North American plant-based market accelerating as supply chain challenges have eased.
Danone’s two other geographic markets of China, North Asia and Oceania and Rest of the World posted combined sales of €2,644 million ($2,869 million) during the quarter, up from €2,354 million ($2,554 million) the year prior.
For the remainder of the year, Danone is guiding sales growth in a range of 3% and 5%.
“We continue to see input cost inflation around mid-teens levels with broad-based inflation from milk and other ingredients, packaging materials, manufacturing and transportation costs,” Mr. Esser said. “Against that backdrop, we are preparing ourselves to deliver productivity on our cost of goods sold above last year, above 5%, while aiming to deliver strong pricing contributions ahead of what we saw already in Q4 last year.”
Danone continues to operate some parts of its business in Russia following the country’s invasion of Ukraine and an analyst asked if the company was taking a “reputational risk” with that decision.“We are very clear that we strongly condemn the invasion of Ukraine by Russia with no ambiguity,” Mr. Esser said. “Our statement, our position is unchanged vis-a-vis what you have seen. And I think you have also seen that we have decided to significantly adapt our operations in Russia. Obviously, we monitor the situation very closely, and we’ll let you know as soon as there is something new to say.”