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Consumer boycott, transportation strikes hit Danone's Q2 sales, EBIT

An ongoing consumer boycott of Danone's dairy products in Morocco and transportation strikes in France and Brazil dragged on second-quarter sales, executives said during a call with analysts on July 27.

During the quarter ended June 30, a boycott in Morocco slashed 40% off sales of dairy and plant-based products in Morocco for the French packaged foods producer, Danone reported.

The boycott over jobs and poor economic conditions in Morocco started in April and targeted Danone and other milk suppliers, bottled water and fuel companies, Reuters reported.

International dairy and plant-based product sales at the company slipped to €2.01 billion in the second quarter, down from 2.26 billion a year earlier, according to Danone's earnings report. Overall sales in the second quarter dropped 4.4% from a year earlier to €6.41 billion.

That sales drop will likely continue throughout 2018, said Cecile Cabanis, CFO and executive vice president of IS/IT, cycles and procurement.

Danone sent teams to Morocco to meet with residents and explore how to address their concerns in hopes of ending the boycotts, Cabanis said during the conference call with investors. The company is exploring packaging alternatives and working with dairy farmers to try to lower prices in Morocco.

"While this situation is ongoing and even so it is too soon to make any definitive prediction, it is clear that this unprecedented event will continue to weigh on our performance in the second half," Cabanis said.

Separately, a 10-day trucker strike in Brazil in May and June hit dairy sales, Cabanis said, without providing details. Danone is restructuring its product offerings and distribution model to try to turn around slumping sales in Brazil that were hit harder in the second quarter by the strike, the company said.

Danone is the latest consumer-goods company to report a sales hit from the Brazil strike. Beer maker Anheuser-Busch Inbev SA/NV, snack producer Mondelez International Inc., beverage company Coca-Cola Co. and Unilever PLC have all reported a slump in sales from the truck stoppage.

Another strike, this time by rail workers in France, contributed to a €10 million hit on EBIT during the quarter for Danone's Evian water business, Cabanis said, adding the company expects there could be a "spillover" effect in the second half due to hot weather and the inability to fully deliver water and keep shelves stocked.

The Associated Press reported in May that the strikes began in April to protest French President Emmanuel Macron's effort to revamp a national railway company, including the revocation of a policy that allowed rail drivers to retain jobs and other benefits for life.