Danone posted its strongest quarter growth for seven years on resurgent bottled water sales and rising prices, but inflation and the prospect of tightening margins kept a lid on City excitement.

The under-pressure French dairy giant said net sales in the final quarter of 2021 jumped 6.7% to €6.2bn (£5.2bn) on a like-for-like basis, despite volumes rising just 0.4%, as instead it leaned on pricing and mix management.

The strategy helped full-year like-for-like revenues climb 3.4% to €24.3bn as volumes fell 0.6%, and saw Danone return to profitable growth in the second half. Recurring operating profits for 2021 increased 2.8% on a like-for-like basis to €3.4bn. However, margins declined by nine basis points to 13.7% as top-line acceleration was not able to fully offset input cost inflation.

Waters led the way in terms of growth, surging 17.3% in the fourth quarter and 7.2% for the full year, while specialised nutrition increased 6.4% and 1% respectively and essential dairy and plant-based products rose 4.3% and 3.7%.

In Europe and North America, Danone recorded like-for-like sales growth of 4.3% in the fourth quarter and 2.9% for the year, driven by a recovery in its water category as lockdowns ended. Rest of the world saw sales growth of 10% in the final three months of 2021 and 4.1% for the year, driven by a rebound in its previously troubled specialised nutrition infant formula division.

Danone shares rose 3.9% to €56.69 on the news, although this was undone on Thursday by wider market falls on the Ukraine/Russia situation, seeing Danone fall back 5.1% to €54.98.

“This was a good start from the new CEO,” RBC stated. “Even volume growth – so often Danone’s weak spot historically – more or less came up to expectations.” Bernstein also welcomed the “good sales beat” but added most companies that have reported fourth-quarter figures to date “have had large beats”.

One continued concern for the City was that the group did not provide any growth forecasts for 2022, which instead is expected to be delivered at an upcoming capital markets day on 8 March.

Broker Jefferies noted that Danone beat top-line expectations, particularly in the troubled infant nutrition category in Chine, but added: “The question remains one of whether new CEO Antoine De Saint Affrique will take a margin reset, or not.”

Danone shares remain around 25% down on pre-Covid levels, substantially underperforming against fmcg contemporaries, which led to the departure of CEO Emmanuel Faber in March 2021.