Danone shares down as China slowdown clouds second-quarter sales beat

By Dominique Vidalon and Richa Naidu

PARIS/LONDON, July 29 (Reuters) - Danone shares fell about 4% on Wednesday as a sharp slowdown in the key Chinese market overshadowed forecast-beating second-quarter sales and a recovery in its Specialised Nutrition business.

The division had been hit in the first quarter by a recall of European infant formula products and supply disruptions linked to the Iran war.

The French consumer goods group, whose brands include Evian and Badoit water and Activia yoghurt, said second-quarter sales rose 4.2% on a like-for-like basis, beating expectations for a 3.7% rise in a company-provided analysts' consensus.

HOT SUMMER BOOSTS VOLVIC SALES

The sales beat was led by a 4.5% rise in specialised nutrition sales and a 4.7% rise in the water business, which benefited from a hot summer — notably in Europe — that boosted Volvic sales.

However, sales growth in China was just 3.6%, against 10.3% in the first quarter.

Jefferies analysts called it "a notable slowdown", while Danone attributed the deceleration to normalising competitive pressures in the infant formula category.

The company reported overall prices rose about 2.3% in the second quarter, while volumes climbed 1.9%.

Danone's recurring operating income for the first half was €1.854 billion ($2.11 billion), with a margin of 13.3% versus 13.2% a year ago.

That was slightly above expectations for a 13.25% margin and reflected strong productivity gains that offset pressure from the baby formula recall in Europe and the initial effects of inflation, the company said.

NORTH AMERICAN DAIRY IN FOCUS

First-half performance showed broad-based growth across categories and regions.

Danone remained focused on driving a gradual and sustainable improvement in Essential Dairy Products (EDP) in North America, and in the short term was happy to see a stabilisation in coffee creamers, CEO Antoine de Saint-Affrique said.

"While some areas still require further progress and the environment remains unstable, we enter the second half of the year with confidence that 2026 will be another year of delivery," he said.

Second-quarter sales were up 4.3% in the Americas, helped by demand for yogurt.

"The U.S. consumer is making more choices on how to spend their money - but that's to the benefit of the yogurt category," Danone finance chief, Juergen Esser, said, adding that it is able to meet U.S. demand for Oikos products again after capacity issues last year.

"We see zero signs of a slowdown when it comes to this category."

Danone reiterated its 2026 guidance in line with its mid-term aims of like-for-like sales growth of 3% to 5%, with recurring operating income growing faster than sales.

"We expect that these results will meet a slightly mixed reception this morning, with consensus estimates likely to rise 1-2 (percentage points), but questions likely to be asked about the lacklustre volume growth, and U.S. Essential Dairy Products growth in particular," Bernstein analysts said.

($1 = 0.8771 euros)

(Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta, Sonali Paul, Jan Harvey and Louise Heavens)