(News Bulletin 247) – The CAC 40 company suffered a decline in its current operating margin last year, eaten away by inflation. But the results prove to be superior to expectations and reassuring.

For a long time Danone has suffered from the comparison with its major comparables, in particular the Swiss Nestlé, which is more dynamic and more profitable. To relaunch the tricolor agrifood giant, its managing director, Antoine de Saint-Affrique, initiated a strategic plan called “Renew Danone” last March, noting that a quarter of the group’s product portfolio is showing unsatisfactory performance. (decline in growth, destruction of value), as Barclays recently pointed out, and that part of these declining activities (10% of the portfolio) could be sold.

This transformation of the group towards better standards of growth and profitability will necessarily be gradual. But the annual results unveiled this Wednesday morning by the owner of the Evian, Actimel and Volvic brands clearly mark a step in the right direction.

“These are very satisfactory results. Danone exceeded expectations on all the main income statement items, which is rare in this earnings season”, appreciates Royal Bank of Canada.

A dynamic activity in North America

The group’s turnover increased by 13.9% over one year in 2022, to 27.66 billion euros, and by 7.8% excluding the effect of exchange rates and scope, with an increase on a comparable basis. 7% over the last quarter, more than the 6.2% expected on average by the consensus.

Revenues in 2022 were driven by price increases, with an impact of 8.7%, while volumes, on the contrary, had a negative contribution of 0.8%. By division, the waters segment recorded the strongest like-for-like growth (10.5%) followed by specialized nutrition (10%), which includes, for example, infant milk, while the EDP division (dairy and of plant origin) saw its revenues increase by 5.8% with a significant fall in volumes, by 4.3%.

Barclays particularly highlights the performance of North America (+8.9% like-for-like) where the group recorded double-digit growth in the EDP division and in waters, with rising volumes. For the British bank, this region, which has been revitalized by its managing director, Shane Grant, can serve as a model for Europe, where growth is more sluggish (+5.2% with a drop in volumes of more than 1%).

A margin above expectations

At 12.2%, the current operating margin for 2022 is slightly above expectations (12.1%). It fell by 154 basis points (1.54%) mainly due to the inflation of “inputs”, i.e. the foodstuffs and products used in the composition of the articles marketed by the company, this inflation having had an impact of 730 basis points, or 7.30%. “This negative effect was partially offset by the positive impact of growth levers, which include volume, mix and price, for a cumulative effect of approximately +570 basis points” or 5.70%, explains Danone. The group has also accelerated its reinvestments in its brands, with a negative impact of 102 basis points or 1.02% in the second half and of 58 basis points (or 0.58%) for the whole of 2022.

Net profit was halved to 960 million euros, affected in particular by a charge of 500 million euros due to the withdrawal of the EDP activity from Russia. But current net profit per share, of 3.43 euros, exceeded expectations (the consensus was at 3.35 euros).

As for the outlook, it is in line with expectations. Danone promises “a return to sustainable growth” this year, with like-for-like growth of between 3% and 5% and a “moderate” increase in current operating margin.

“Danone is starting to gain momentum”

“Restoring the credibility of its expectation management is about as important to Danone’s share price as restoring the credibility of its financial performance in our view, and these results mark a positive development for both.” , likes Royal Bank of Canada. The bank believes that the company is “well placed” to continue its good trend.

“Danone is starting to gain momentum,” said Barclays. Quoted by Reuters, JP Morgan considers that the “recovery” of the group is “on track”.

The Paris Bourse appreciates these encouraging results. With an increase of 4%, Danone signs around 3:40 p.m., the largest increase of an almost stable CAC 40 (-0.04%).

The group will, this year, continue its refocusing. Last month Danone said it was considering its strategic options, including a sale, of its Horizon Organic dairy business – often cited by analysts as a source of underperformance for the group – and Wallaby, which together account for 3% of his annual income. The company did not give an amount, but Stifel estimates that it could earn around 800 million euros in the event of a sale.