France’s Danone announced on Thursday that pricing negotiations with retailers have concluded for the year, anticipating a reduced impact on its European operations following stronger-than-expected first-quarter sales.
The producer of Activia yogurt, Evian water, and Aptamil maintained its targets for like-for-like sales growth in 2024, ranging between 3% and 5%, alongside a moderate enhancement in recurring operating margin.
Danone’s shares surged by 3% at market open, further climbing to 1.5% higher by 0707 GMT.
During a call to discuss earnings, Chief Financial Officer Juergen Esser stated that the majority of pricing negotiations with European retailers have concluded, indicating a gradual return to normal business operations.
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Similar to Nestle and P&G, Danone is among several prominent consumer goods companies that have significantly increased prices over the last couple of years to navigate elevated input costs, frequently engaging in contentious discussions with retailers such as Carrefour and Tesco.
Cost pressures have escalated due to the COVID-19 pandemic and irregular weather patterns affecting agricultural commodities, and the situation has exacerbated following Russia’s invasion of Ukraine.
During the first quarter, Danone implemented a price increase of 2.9%, marking its most modest hike in at least two years, contrary to analysts’ projections of a 2.7% rise. In the preceding fourth quarter, the company had raised prices by 4.3%.
“This update is likely to position the shares as slightly outperforming peers this morning,” commented Jefferies analyst David Hayes. “The release’s confident tone regarding ‘everything going to plan’ is reinforced by strong performance in key areas.”
Danone’s shares have declined by 3.3% since the beginning of the year, significantly lagging behind the EURO STOXX Consumer Products and Services index, which has risen by 7.3%.
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In the first quarter, like-for-like sales increased by 4.1% to 6.79 billion euros ($7.25 billion), surpassing expectations for 3.4% growth according to a consensus compiled by the company from 17 analysts.
Despite investor apprehensions that the price increases might result in retailers’ private label brands gaining market share, Danone’s first-quarter sales volumes/mix grew by 1.2%, surpassing the 0.8% increase anticipated by analysts.