Business
Danone surprises with more moderate price increases and rising sales
Danone recorded strong sales growth in the second quarter due to higher sales volumes despite moderate price increases, leading to a 4 percent rise in shares.
Danone increased prices by 1 percent in the second quarter, less than the 1.5 percent expected by analysts. This decision led to the company's shares rising by 4 percent in early trading. The French food manufacturer, known for Activia yogurt and Evian water, reported that comparable sales growth in the second quarter was mainly driven by higher sales volumes rather than price increases. This marks a departure from the price-driven growth of recent years.
After several years of price increases due to inflation-related cost hikes, packaged food manufacturers are now beginning to slow the pace of price increases to win back customers. Last year, Danone raised prices by an average of 7.4 percent but announced earlier this year that it would refrain from broad price hikes and instead apply selective price increases only to specific products.
In the first half of the year, Danone increased prices by 2 percent, matching the level of competitor Nestlé, which reported last week that prices had fallen faster than expected, due to increased promotional activities and accelerated volume growth. Danone achieved sales growth of 4 percent on a comparable basis in the second quarter, driven by volume growth of 2.9 percent. Comparable sales also grew by 4 percent in the first half of the year, while volumes increased by 2.1 percent, which exceeded expectations.
Danone's results follow the market trend: a great success in volumes and a major failure in prices," wrote Bernstein analyst Bruno Monteyne in a note to clients. "The doubts in the market about how price pressure will affect most consumer goods stocks in the coming quarters are growing.
Danone's CFO Juergen Esser attempted to reassure analysts, stating in a conference call on Wednesday that prices will remain positive in the second half of the year. The company reported recurring net income - excluding extraordinary items - of 1.16 billion euros ($1.26 billion) in the first half, an increase of 2.6 percent year-on-year, while reported sales fell by 2.9 percent to 13.76 billion euros.
