Danone Backs Guidance as Shoppers Welcome Easing Price Hikes — 2nd Update

By Dominic Chopping

Danone shares rose 4% in early trading after the company said that shoppers bought more of its branded products in the second quarter as it eased the pace of price hikes.

The French food company behind Activia yogurt and Evian water said Wednesday that like-for-like sales growth in the second quarter was primarily driven by volumes rather than price hikes, marking a change from the price-led growth of recent years.

After a couple of years of raising prices to cover an inflation-led surge in costs, packaged food producers are beginning to ease the rate of price hikes as they try to entice customers back.

Danone lifted prices by an average of 7.4% last year, but said it would ditch broad-based pricing earlier this year as inflation began to normalize and instead focus on selective price increases on only specific products while switching from price-led growth to volume-led growth.

It increased prices by 1% in the second quarter, a smaller hike than the 1.5% expected by analysts. In the first six months, Danone raised prices by 2%, the same level as peer Nestle which last week said pricing had come down at a faster pace than it had expected, noting increased promotional activity and an acceleration in volume growth.

Sales grew 4% on a like-for-like basis in the second quarter driven by 2.9% growth in volumes, while first-half like-for-like sales also grew 4% as volumes rose 2.1%, all coming in higher than expected.

Danone earnings continue the market trend, with a big beat in volumes and a big miss in pricing, Bernstein analyst Bruno Monteyne said in a note to clients.

"Market doubts of what pricing pressures will do to most consumer stocks in coming quarters will get stronger," he said.

However, Danone Chief Financial Officer Juergen Esser sought to reassure analysts on a call Wednesday, saying that pricing will remain positive in the second half of the year.

The company reported a first-half recurring net profit--which excludes exceptional items--of 1.16 billion euros ($1.26 billion), up 2.6% on year, as reported sales fell 2.9% to EUR13.76 billion.

A company consensus had seen recurring net profit of EUR1.11 billion on sales of EUR13.66 billion.

Danone still expects like-for-like sales growth of between 3% and 5% in 2024 and a moderate improvement in recurring operating margin.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

July 31, 2024 05:40 ET (09:40 GMT)

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