PARIS – Danone SA experienced a 7% rise in the cost of goods sold during the first half of 2021 and is experiencing 9% in the second half of the year. Looking ahead to 2022, management does not see the inflationary dynamics affecting the business easing.
“We do at least expect 8% next year,”
said Juergen Esser, chief financial, technology and data officer, during an Oct. 19 conference call with securities analysts to discuss third-quarter results. “Part of the inflation we are seeing in the H2 of this year is because of the transportation tensions.
“Let’s be extremely clear because we see spot rates for trucks in the US at a record level never seen before. We see at least 8% for next year. If we will continue to see tensions on global supply, including truck capacity, it will be more than 8% next year. It may be 9%. It may be more.”
Mr. Esser said the company is focused on pricing and productivity to offset rising costs, and flexibility to limit supply shortages.
Total company sales during the third quarter rose 5.8% to €6.16 billion ($7.16 billion). Danone’s Essential Dairy and Plant-based (EDP) business unit, its largest, had sales rise 5.2% to €3.23 billion ($3.76 billion). Specialized Nutrition sales rose 4.6% to €1.78 billion ($2.07 billion) and Waters sales rose 9.6% to €1.11 billion ($1.29 billion).
“Global message for this third quarter is, certainly, it has been another quarter with focus on execution and delivery for us,” Mr. Esser said. “First of all, and importantly, this is translating into another quarter of growth with, again, a broad-based contribution from all categories.”
In Europe and North America, EDP had strong results during the quarter. In North America, yogurt brands Oikos and Two Good had double-digit growth and gained share in the Greek segment, Mr. Esser said.
“In the probiotics and wellness segments, Activia delivered mid- to high single-digit growth, leveraging its unique and winning proposition on key consumer trends,” he said. “In Coffee Creations, International Delight and Stok delivered high single-digit growth with resilient share performance also in this quarter.”
The North American plant-based business was slowed by supply chain disruptions, specifically logistics that affected Danone’s ability to serve customer demand for some products.
“It did also limit our ability to execute some of our restaging initiatives to the extent we initially planned,” Mr. Esser said. “Those combined effects led to subdued growth over the quarter at (a) low single-digit level. (The) last few weeks have shown sequential improvement on both service level and market share so that we should expect to progressively recover over the next weeks and months.”
Despite the supply chain challenges, management expects the reopening of economies around the world and greater levels of vaccination to benefit the company.
“… we are reiterating our guidance, to deliver profitable growth in H2 driven by the overall positive momentum of our categories, a positive geographical mix and a more balanced category mix,” Mr. Esser said. “We also continue to expect recurring operating margin broadly in line with that of last year.”
Supporting the company’s guidance are productivity plans that are producing results earlier than expected. Mr. Esser added that stock-keeping unit rationalization programs implemented in the first half of the year accelerated the productivity initiatives.
“This is definitely helping us to sustain our guidance unchanged vis-à-vis what we were discussing three months to date,” he said. “What I think is also important … is the fact that we are exactly in the dynamic we were expecting. And when I say ‘exactly in the dynamic,’ I mean in top-line dynamic.”