Danone eyes better margins in 2023, Q4 sales top estimates

French food group Danone said on Wednesday it expected better margins this year after soaring raw materials and energy costs weighed down its full-year 2022 operating margin.

Sales in the final quarter topped estimates on the back of higher prices, and finance chief Juergen Esser said Danone was ready to lift prices again this year, if necessary, although it expected inflation to moderate through the year.

Overall, price increases contributed 8.7% to annual revenue growth and 11.3% to fourth-quarter growth.

Danone, like its rivals Nestle and Unilever, has increased prices to cope with surging costs but faces a challenge when it comes to the extent of price hikes before even affluent shoppers decide enough is enough.

Danone's operating margin for 2022 declined to 12.2% of sales from 13.7% in 2021, broadly in line with expectations, reflecting inflationary pressure and costs related to investments in brands in the second half of the year.

"Building on 2022 momentum, we are entering 2023 with renewed ambition and confidence in our strategy," CEO Antoine de Saint-Affrique said.

The world's largest yoghurt maker's 2023 forecast was in line with its mid-term like-for-like sales growth target of 3% to 5%, with a moderate improvement in recurring operating margin. Its shares rose 2.6% by 1023 GMT.

A sequential improvement in gross margins, higher sales and productivity would fuel margin improvement, Esser said.

The owner of Activia yoghurt and Evian bottled water reported fourth-quarter sales growth of 7%, beating market expectations of 6.2%, helped by growth across Essential Dairy and Plant-based, Specialised Nutrition and Waters segments.

In North America, quarterly sales growth of 9.7% was led by brands such as International Delight in coffee creations, Activia and Oikos in yoghurt and Silk in plant-based, all brands where Danone is starting to reap the fruits from reinvestments.

In China, demand for Aptamil continued to drive infant formula sales but the Mizone water brand suffered from COVID-related restrictions. There were however signs that demand for Mizone was improving since China relaxed its no-COVID policy.

Saint-Affrique is implementing a revival plan amid mounting input costs and uncertainty caused by Russia's invasion of Ukraine that has also led the group to plan shedding control of its dairy food business in Russia.

Last month Danone also announced it would explore strategic options, including a potential sale, for its organic dairy activity in the United States, comprising the Horizon Organic and Wallaby businesses, as part of its plans to part with non-performing assets.