Until now, price increases have been the main growth driver in the consumer goods sector, which has often been penalized by declining volumes. This is no longer the case for Danone: this is the sixth consecutive quarter of volume growth, and this half-year even saw growth of 4.2%.
Since Antoine de Saint-Affrique took over as CEO in 2021, the group has reviewed its brand portfolio, divesting peripheral businesses that account for 10% of revenue. This has paid off, as the group is on track in terms of cash generation. Record cash flow generation in 2024, which amounted to $3bn, allows management to talk about strategic acquisitions in the second half of the year.
Asia as the driving force
The Nutrition segment, which represents a third of revenues, had been tending to decline due to Western countries affected by falling birth rates. However, new growth drivers have been found, and the segment grew by 8.7% in the first half of the year.
Growth and operating margin trends for Danone's Nutrition segment (Source: Bloomberg)
The group is counting on China and India to drive growth, particularly in infant formula and medical nutrition. China, in particular, is driving growth: for the second consecutive quarter, where performance has surprised analysts, with growth almost doubling their estimates. All segments are resilient, except for water, which has been penalized due to the weather in South America, but it is China that is enabling Danone to beat revenue estimates.
What's more, margins are consistently above 20% (see chart), even reaching 30.7% in China.
While Nestlé is suffering from a deflationary environment in China, Danone is posting strong results. "Competitive pressures could intensify," Jefferies analysts note, "but for now, Danone clearly seems to be winning."
Outlook for 2025
Danone remains the world leader in dairy products and plant-based foods, and number two in infant nutrition and water. In these highly fragmented markets, where private labels are very present, price increases are limited. But positioning in health and premium products could make the difference.
After three years of price inflation, the sector is being forced to slow down price increases. Danone is coming out on top by gaining market share, a key growth driver for the coming years. Despite this strong performance, net income fell by €179m. Quickly forgotten by the market, non-recurring items added €57m last year, but took away €191m this half-year.
The group confirmed revenue growth of between 3% and 5% for this year, a target that now seems within reach.
