French food group Danone has seen its sales go up 6.7 percent to 5.72 billion euro in the second quarter of 2013: higher than analysts had expected, because of the high demand for baby food. In China, plagued by food scandals, consumers switched to the better known (and trusted) international brands.
Scandals China good for sales Danone.
During the second quarter Danone especially saw a rise in sales of baby food in China and Hong Kong. That is a consequence of the food scandals at local brands, causing consumers to switch to foreign products in large numbers. The four biggest international groups now control more than one third of the market.
Recently the four were accused of abusing the situation to creating pricing agreements. Nestlé and Danone have already agreed upon lowering the prices of some baby milk products. The rise in sales in China made the global sales of the branch baby food at Danone go up by 13.5% in the past quarter.
Water sales go strong, dairy not so much
The branch 'waters' also had a strong rise in sales and went up 10.5% in the second quarter, both as a result of higher volumes (+7.1%) and of higher prices. Especially in upcoming markets, with the Asians markets taking the lead, sales got quite the boost.
The more mature dairy department is growing at a slower pace (+2.6%). The sales of Greek yoghurt in the US and higher sales in Russia could easily compensate the disappointing results on the European market. Starting next year, Danone is working with Starbucks when it comes to their Greek yoghurt in the US.
Dropping gross margin puts pressing on underlying profit
Despite the higher demand of its products, the gross margin of Danone dropped by 0.49% in the first six months of 2013, to 13.3%. This was due to higher prices of raw materials and some price adjustments in Europe, where the economic circumstances remain difficult. In the second quarter the total volume sold dropped by 1.6% on a comparable basis.
Danone made a net profit of 972 million euro in the first six months of 2013, compared to 881 million in the same period of 2012. The progress is mainly due to a higher valuation of the participation of 29.2% Danone owns in Moroccan dairy company Centrale Laitière. The underlying profit is said to have dropped 1.2% on a comparable basis, in comparison to the previous year.
Danone is still holding on to a sales growth of at least 5% for the complete year. The conditions in Europe are expected to remain difficult for the company, but Danone is expecting growth on other markets.