In the second quarter of 2019, consolidated sales stood at €6.5bn ($7.2bn), up 2.5% on a like-for-like basis. Sales grew by 3.5% in value, with a continued sales/kg improvement. Volumes slightly declined by -1.0%.
All reporting lines contributed to the growth and posted like-for-like sales growth over 2%. Reported sales were up 1.3%, including a negative scope effect (-1.4%), primarily linked to the de-consolidation from April 1 of Earthbound Farm, which was sold in April 2019, a minor negative impact of currencies (-0.1%), and +0.3% from the organic contribution of Argentina to growth.
Dairy and plant-based
Essential Dairy & Plant-based (EDP) posted net sales in the second quarter up +2.2% on a like-for-like basis, including a 3.4% increase in value, and a -1.2% decline in volumes. Performance was driven by a stabilization at global level of dairy activities, while the company noted that plant-based activities continued to deliver consistent strong growth. All regions grew in Q2.
Europe delivered slightly positive growth, and the company said there was good performance in southern Europe with Spain and France stabilized for the first time in the last seven years.
Plant-based Alpro continued to post double-digit growth, with balanced contribution from core business and new markets. North America delivered moderate sales growth, with growth in plant-based driven by almond-based beverages and adjacent categories, growth in coffee creamers, flat sales in yogurt impacted in the US by competitor promotion activity, notably in the Greek yogurt segment.
CIS growth slowed in Q2, as core segments were impacted by a softer consumer environment while kids and indulgence offerings performance remained sustained. In Latam, the Brazil market grew, and Mexico posted solid growth driven by increasing plant-based penetration.
Morocco delivered sales growth of around +10%, with Centrale Danone recovering market share and regaining market leadership, following consumer engagement and a reshaping of the portfolio.
Specialized nutrition
Specialized Nutrition sales growth accelerated in the second quarter, up 3.2% on a like-for-like basis, with an increase in value of 4.4% and a decrease of 1.3% in volumes. Performance was driven by Advanced Medical Nutrition and a return to growth in Early Life Nutrition.
Advanced Medical Nutrition delivered mid-single-digit sales growth in the first-half, with all segments (adult and pediatric care) and all regions performing strongly. China led the growth, with double-digit sales growth, alongside robust dynamics in Europe and in rest of the world.
Early Life Nutrition (ELN) registered moderate sales growth. After three quarters of decline, ELN China delivered slightly positive growth. Danone said the rest of the world posted solid growth, with strong performance in the rest of Asia, benefiting from the relaunch of Bebelac in Indonesia, and double-digit growth in the Americas. Performance in Europe was negative but improved, notably in France, getting positive results from the pipeline of Bledina innovations.
H1 2019 recurring operating margin
In H1 2019, Danone’s recurring operating income stood at €1.9bn ($2.1bn). Recurring operating margin reached 14.69%, up +42 bps on a reported basis.
This was driven by a +68 bps margin improvement on a like-for-like basis, reflecting notably Danone’s valorized growth model and operational savings from ‘Protein’ efficiency-program, offsetting raw materials gross inflation; sales and marketing expenses optimization, as the company pursues the shift of its marketing spending towards digital; and overheads management.
Overall, the ‘Protein’ efficiency program delivered an additional €150m ($167m), approximately, in gross savings in H1 2019.
Recurring net income from associates increased to €51m ($56.8m), despite the reduction in Danone’s stake in Yakult from 21.3% to 6.6% in March 2018, reflecting good results from the participation in Mengniu and Yashili.
Total non-recurring net income amounted to -€186m (-$207m) in H1 2019 (including a post-tax loss of around -€50m (-$55.6m) from the sale of Earthbound Farm), down from an exceptional positive amount of €72m ($80m) last year, which was due to the capital gain from the partial sale of Danone’s stake in Yakult. As a result, reported EPS was €1.58 ($1.760, down -15.4% versus last year.
Emmanuel Faber, chairman and CEO, said, “Our first-half results demonstrate our continued focus on the combination of strong execution and progress in the transformation of Danone, in order to drive agility and resilience, and deliver consistent profitable growth.
“I was pleased to see top-line accelerating in the second quarter, with growth across all our businesses. The innovation momentum remains strong, while we have addressed most of the under performers in our portfolio. Our margin improvement was of high quality, driven by gross margin progression, and further savings from our Protein efficiency-program.
“As this short term delivery is served by our long-term focus on creating value in a responsible and inclusive way, we are well on track for our 2020 objectives. With unchanged expectations for the full year, I am confident that the improved fundamentals of our business will continue to drive top-line growth acceleration and margin expansion throughout rest of the year.”
