Inflation won't cool much until 2023-2024 and that could hit demand: Economist
Danone SA, the world’s largest yogurt maker, forecast that inflation in milk, packaging and transport costs could worsen next year, leading the company to shift price increases to consumers and seek more cost savings.
The company’s cost inflation will accelerate to 9 per cent in the second half from 7 per cent in the first part of the year, Chief Financial Officer Juergen Esser said on a call with reporters. The stock fell as much as 2.3 per cent.
“We expect 2022 at least at the same level as 2021, and maybe even higher,” Esser said. “We need to get prepared for more supply-chain disruptions and challenges.”
Shortages of transport containers and blocked-up ports have snarled logistics for companies around the world. The worldwide franchiser for the Ikea home-furnishings chain last week also predicted such issues to continue into next year. That poses yet another challenge for Danone, which named a new chief executive officer this year after activist shareholders criticized its underperformance.
While Danone initially focused price hikes on its dairy business because of a surge in milk costs, the company is now preparing increases for its bottled-water and specialized nutrition units as well, Esser said. The company also said it plans to rely more on efficiency measures.
Inflation has been highest in emerging markets like Mexico, Brazil and Russia, Esser said. Products will also become more expensive in the U.S. and in Europe, where Danone is currently in talks with retailers.
The company said its plant-based business, which makes products like soy milk and almond coffee creamer, was hampered by logistics disruptions. Spot rates for trucks in the U.S. are at record levels, though capacity may improve through the first quarter of next year, Esser said.
Its dairy business has also been faced with cardboard shortages around the world. Costs of plastic packaging is rising by a high double-digit percentage, Esser told analysts.
What Bloomberg Intelligence Says
Danone’s new CEO Antoine de Saint-Affrique faces the challenging task of improving underlying performance, as the company has struggled to consistently increase both prices and volume simultaneously since 2015, which is why we believe greater innovation is key as inflationary pressure rages. Without that, consumers could reject further price hikes and switch to other brands.
-- Duncan Fox, BI consumer-goods analyst
“Managing the full supply of packaging at the moment is not a walk in the park,” Esser said.
Danone’s sales climbed 3.8 per cent on a like-for-like basis in the third quarter as pricing offset a drop in shipments. Analysts expected a 3.6 per cent gain.