Danone First-Half Trails Analysts’ Estimates as Raw-Material Prices Rise

Danone (BN), the world’s biggest yogurt maker, reported first-half profit that missed analysts’ expectations amid higher costs for financing and raw materials.

Net income rose to 861 million euros ($1.24 billion) from 838 million euros a year earlier, the Paris-based company said today in an e-mailed statement. That missed the 899.1 million- euro average estimate of five analysts surveyed by Bloomberg.

Higher costs for both milk and plastic took a “particularly heavy toll” in the first half, Danone said, adding that the effect should be less pronounced in the remainder of the year. The company fought the spike in input costs by reducing expenses by 246 million euros in the period and hiking prices on the products it sells, helping sales growth accelerate 8.7 percent.

Over the past month “we’ve seen raw materials starting to stabilize,” implying they may have peaked, Chief Financial Officer Pierre-Andre Terisse said on a conference call with journalists today. Danone anticipates raw-material costs will rise between 6 and 9 percent on average this year. Danone’s net debt expense rose to 88 million euros from 64 million euros in the first half.

The shares fell as much as 2.07 euros, or 4.1 percent, to 48.60 euros and traded at 49.07 euros at 9 a.m. in Paris. The company’s stock has advanced 5.7 percent this year, giving Danone a value of 32.2 billion euros.

Volume Growth

The sales advance, which excludes currency shifts and divestments, was above analysts’ estimates of a 7.9 percent gain. Volume growth was 4 percent. Second-quarter revenue increased 8.8 percent.

“Financing costs have risen more than people were looking for and that may cause some concern,” said Chris Wickham, an analyst at Matrix Corporate Capital in London. “But the sales numbers were a clear beat and you can fix the financing side more easily than you can slower growth.”

Revenue from bottled water climbed about 17 percent on a comparable basis as demand increased in Japan following the March earthquake and tsunami and amid warmer weather in Western Europe. Volume in Europe for the whole company dropped 0.3 percent.

Dairy Decline

While sales of dairy products such as Actimel drinking yogurt, the company’s biggest division, gained 6 percent in the first half, growth in the second quarter was 5.5 percent as volume dropped. The company last year acquired a controlling stake in OAO Unimilk to become the biggest dairy company in Russia. Volume fell at Unimilk by 11 percent in the period as the company focused on selling products with added value.

The owner of the Evian and Volvic bottled-water brands gets about half its sales from emerging markets after buying a 58 percent stake in the Russian business last year. Danone said in February it plans to expand in markets such as China, India, Indonesia and Mexico as well as the U.S.

Danone reiterated its guidance for 2011, saying the operating margin will probably widen 0.2 percentage point, excluding certain items. The company expects like-for-like sales to rise 6 percent to 8 percent.

Like-for-like sales exclude divestments and currency changes and are reported on a basis that assumed Danone owned Unimilk in the first half of 2010.

To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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