July 30, 2020 / 6:22 AM / 8 days ago

Coronavirus, dwindling water sales shrink Danone first-half profits

PARIS (Reuters) - Danone reported weaker first-half results on Thursday, as costs linked to the COVID-19 pandemic squeezed its profit margins and a decline in out-of-home consumption cut the sales of its bottled water division by 28% in the second quarter.

FILE PHOTO: A company logo is seen on a product displayed before French food group Danone's 2019 annual results presentation in Paris, France, February 26, 2020. REUTERS/Christian Hartmann/File Photo

The owner of Evian and Badoit water predicted an improvement in the second half and said it was confident the second quarter, which saw the pandemic spread to more regions such as Latin America and Africa, would be its “most challenging quarter of the year”.

First-half recurring operating income reached 1.702 billion euros ($2.00 billion), a like-for-like decline of 8.7%, following extra costs of 115 million euros to ensure business continuity and employee safety during the pandemic.

The profit margin slipped to 14% of sales against 14.7% for the corresponding period a year ago.

Second-quarter like-for-like sales fell 5.7 percent to 5.954 billion euros, after rising 3.7% in the first quarter.

This reflected some de-stocking after stockpiling in Europe and North America made at the end of the first quarter because of government-imposed lockdowns as well as the full effect of the closure of restaurants and cafes.

Water sales alone slumped 28%, roughly in line with a 30% prediction made in June.

Overall, out-of-home channels, which usually account for around 45% of water sales in the quarter, fell almost 50%, the company said.

In April, the company withdrew its financial guidance for 2020, citing uncertainty over the pandemic.

It said on Thursday it was not yet able to provide updated financial guidance for 2020.

Finance chief Cecile Cabanis however told reporters she was confident the group would emerge stronger from the current crisis and saw no reason not to reiterate Danone’s mid-term guidance of 3-5% annual like-for-like sales growth.

($1 = 0.8508 euros)

Reporting by Dominique Vidalon; Editing by Clarence Fernandez and Barbara Lewis

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