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Danone warns of growing cost pressures into 2022

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·2 min read
FILE PHOTO: Logo of French food group Danone at the company headquarters in Rueil-Malmaison
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By Dominique Vidalon

PARIS (Reuters) - Danone warned of growing inflationary pressures next year after sticking by its 2021 guidance on Tuesday despite rising costs and slower quarterly sales growth that highlighted the scale of challenges facing its new chief executive.

Antoine de Saint-Affrique, who took over as CEO in September, told analysts it was too early to "formulate a credible path forward", adding that he is focusing mainly on sustainability, innovation and flawless execution.

He said he would provide details of his turnaround strategy when Danone releases annual results on Feb. 23 and at a capital markets day on March 8.

The consumer goods giant, owner of Evian and Badoit water and Activia yoghurt, earlier reiterated that it expects its full-year 2021 recurring operating margin to be broadly in line with the 14% achieved last year, banking on productivity gains and pricing to counter inflationary pressures.

"Like just about everyone across the sector and beyond, we see inflationary pressures across the board. What started as increased inflation on material costs evolved into widespread constraints impacting our supply chain in many parts of the world," said finance chief Juergen Esser.

RISING COSTS

Cost inflation of 8% for 2021 as a whole is expected to worsen next year, Esser said. He said costs are likely to rise by "at least 8%", driven in particular by freight rates for shipping from Asia and by shortages of some plastics and carboards.

By 0915 GMT Danone shares were down 2.1%, having reversed early gains.

Rising costs and supply chain issues are further clouding the picture for European consumer staples in 2022, HSBC warned recently and Danone rival Nestle has also said it expects even higher input costs in 2022.

Danone on Tuesday posted a 3.8% rise in third-quarter underlying sales to 6.16 billion euros ($7.2 billion), slightly above the 3.6% expected by analysts.

This, however, marked a sequential slowdown from 6.6% sales growth in the second quarter and reflected a slower recovery in its waters business, where strong restrictions tied to COVID-19 measures weighed on sales in Indonesia.

In China, growth in Mizone water sales slowed to a a low single-digit percentage, contrasting with strong performances for Evian, Volvic and Font Vella waters in Europe.

Overall essential dairy and plant-based products delivered sales growth of 4.1% but the plant-based portfolio in North America was hit by supply and logistics disruptions.

(Reporting by Dominique Vidalon; Editing by Kim Coghill and David Goodman)

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