Danone(DANOY) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a like-for-like revenue increase of 8.4% for the first half of 2023, driven by a pricing increase of 9.4% and a resilient volume mix decline of 1.1% [6][8] - Recurring operating margin improved by 14 basis points year-over-year, while cash flow reached EUR1.1 billion, an increase of EUR400 million compared to the previous year [8][53] - The recurring EPS for the first half of 2023 was EUR1.76, reflecting a 7.6% increase year-over-year, while reported EPS stood at EUR1.7, up 48% due to a decrease in non-recurring costs [52][53] Performance by Business Lines - The EDP category achieved a net sales growth of 6.2%, with strong double-digit growth in High Protein, Everyday Nutrition, and Coffee Creation platforms [25] - Specialized Nutrition sustained competitive growth at 4.9%, with market share gains in regions like China and Southeast Asia [25] - The Waters category delivered a growth of 9.6%, driven by strong performance from Evian and Mizone brands [27] Performance by Markets - Europe experienced a solid growth of 6.5% in Q2, with pricing up 11.7% and volume mix down 5.1% [31] - North America reported a 5% like-for-like sales growth, with notable contributions from the Coffee Creations business and solid performance in the Yogurt segment [34][36] - Latin America registered a 10.8% like-for-like sales growth in Q2, with all countries contributing to the performance [42] Company Strategy and Industry Competition - The company is focused on restoring its value creation model through consistent delivery and strategic investments, particularly in A&P and product superiority [18][20] - The Renew Danone framework emphasizes long-term value creation rather than short-term tactical wins, with a commitment to reinvest in brands and assets [18][59] - The company is actively working on SKU rationalization to streamline its portfolio and improve operational efficiency [85] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the volatile environment but expressed confidence in the sequential improvement of volumes and operational leverage [55] - The company reiterated its full-year guidance for like-for-like net sales growth between 4% and 6%, expecting to be at the upper range of this guidance [56] - Management emphasized the importance of maintaining a balanced growth model while navigating inflationary pressures [80][81] Other Important Information - The EDP business in Russia has been placed under temporary external administration, leading to a cash impairment of around EUR0.2 billion [54] - The company is making substantial progress in its transformation efforts, particularly in Europe, with expectations of improved volume dynamics moving forward [33][54] Q&A Session Summary Question: EDP performance in the U.S. and Europe - Management noted a good performance in the U.S. EDP, particularly with Oikos and Activia, while addressing a slowdown in the Danimals brand due to price elasticity [63] - In Europe, the company is leveraging successful strategies from Spain to improve performance in other countries [64][65] Question: Growth in China and Specialized Nutrition margins - Specialized Nutrition in China saw nearly 7% growth, with strong contributions from Infant Milk Formula [68] - Margins in Specialized Nutrition were down due to investments in innovation and the timing of price increases in Europe [71] Question: Pricing adjustments and strategic roadmap - Management indicated that while pricing effects are expected to normalize, inflation will still impact costs, necessitating a sophisticated pricing strategy [80] - The company is focused on consistent delivery before moving to the next phase of its strategic roadmap [77] Question: SKU rationalization and capital allocation - SKU rationalization is progressing, with expectations to normalize by the end of the year, while maintaining a disciplined approach to portfolio management [85] - Free cash flow reached EUR1.1 billion, driven by disciplined capital allocation and working capital management [87]