Danone facing cost, supply chain issues from Middle East conflict

PARIS — The conflict in the Middle East is presenting Danone SA with supply chain challenges and cost inflation pressures, in addition to directly impacting its business in the Middle East, the company said during a recent call with investors to present its 2026 first-quarter results.

“As you all know, this conflict is having consequences on logistics and distribution flows in the region, a region that is representing around 2% to 3% of the sales of our company,” said Juergen Esser, group deputy chief executive officer, in charge of finance, technology and data at Danone. “We don’t know really what the inflationary pressure will do for the full year. Too early to say. For the moment, we have hedging in place moderating the short-term impact, and we are accelerating productivity as much as we can. 

“For the rest, I mean, you see the oil price one day at $80, the next day at $120. It’s extremely difficult to make a forecast for that.”

Danone said its 2026 first-quarter sales were €6.7 billion ($7.85 billion), up like-for-like (LFL) 2.7% compared with the previous first quarter, with LFL sales increases of 3.4% for its Essential Dairy and Plant Based (EDP) category, 1.9% for its Specialized Nutrition category, and 2.3% in its Waters category.

Volume growth for EDP was up 2.1%, Specialized Nutrition increased 1.3%, and Waters rose 0.3%.

However, Danone posted a drop in overall sales revenue of 2% from €6.8 billion a year ago, due to “adverse currency effects of negative 5.6% resulting from the appreciation of the euro against most currencies,” Esser said. The decline included a 10% drop in the US dollar to euro exchange rate from a year ago, according to Danone. The United States makes up 21% of the company’s overall business, the most outside of Europe.

Americas rebounding

In 2025, Danone was hampered by production capacity and distribution issues for its yogurt and coffee creamer products in its Americas region, but those challenges appear to be resolving. LFL sales in the Americas for its EDP category rose 3% during the first quarter to €1.76 billion ($2.06 billion), with overall LFL sales growth of 3.4% in the region. Specialized Nutrition gained 8.9% LFL (€256 million), while Waters increased 2.6% LFL (€266 million) during the first quarter.   

“In the US, we talked previously about not being happy with our competitiveness,” Esser said. “We have seen an improvement in Q1, an encouraging sign. We will have more capacity coming online during 2026. It will help us to double down on our execution on the dairy shelf. Creamers are lapping, as we speak, the supply issues of Q1 2025. All of this will support our recovery for the coming quarters.” 

Esser said Danone’s protein products are “flying off the shelves,” which makes solving its production capacity issues a crucial element in the company’s 2026 outlook.

“When it comes to our winning platforms, high protein is the No. 1 growth driver of the company,” Esser said. “In terms of scale, it’s raising its contribution quarter after quarter, as this is not anymore a European phenomenon or US phenomenon. 

Danone said away-from-home consumption of portable protein is an “important strategy” to capitalize on in 2026.

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“High protein is now a reality everywhere around the world. I’ve been talking about Japan. I could talk about Latin America. I could talk about Australia. We are everywhere prioritizing investments into those platforms, while we are also investing into elements that are more essential protein delivery, like skyr.”

Esser added that away-from-home consumption is an “important strategy” for Danone to capitalize on in 2026, with the company’s Oikos protein shake serving as just one example of portable protein products consumers are seeking today.

Another brand gaining traction in the Americas is Danone’s SToK line of cold brew coffees, which saw double-digit growth during the company’s first quarter, Esser said.    

Recent acquisitions and outlook

Danone announced it was acquiring meal solution provider Huel in March, and last May Danone acquired Kate Farms, a manufacturer of formulas and shakes, which fits into the company’s Specialized Nutrition category in the Americas.    

“This is the first time in the history of Danone where we have access to the health care system and the hospital system in the US,” Esser said. “This is a fantastic platform. And what we are doing as we speak is to combine the access of this platform with the science we are bringing from our global Specialized Nutrition hub. The early signs we have are very, very promising. We see good growth since the acquisition, and we are just starting to materialize the synergies we are getting.” 

Danone’s SToK cold brew coffee brand saw double-digit growth during the company’s first quarter.

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Based on its first-quarter results, Danone confirmed its guidance for 2026 with LFL sales growth between 3% and 5%, and for recurring operating income to grow faster than sales.

“We delivered a solid performance in this first quarter amid a challenging context,” Esser said. “We are applying with rigor our winning strategy, focused on our health-focused categories that benefit from attractive underlying demand and that continue to grow faster than the average of the food and beverage market.”