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Danone Profit Beats Estimates on Chinese Baby Food Sales

Danone, the world’s biggest yogurt maker, reported first-half earnings growth that beat analyst estimates, providing some relief for investors after the company cut its full-year forecast for profit margins last month.

Adjusted net income rose to 911 million euros ($1.1 billion) from 874 million euros a year earlier, the Paris-based company said today in a statement. The average estimate of 11 analysts surveyed by Bloomberg was 901 million euros.

Expansion in emerging markets such as Morocco and India helped offset reduced sales in Europe, which was affected by a “rapid deterioration” in consumer demand, particularly in Spain, Danone said. The maker of Actimel yogurt and Evian bottled-water reiterated its sales guidance for 2012, saying it expects like-for-like revenue growth of 5 percent to 7 percent. Danone also repeated reduced targets for profitability.

“They have a higher exposure to southern Europe than competitors, but the good news is that their emerging-market business is pretty much going gangbusters,” said Julian Lakin, head of research at Mirabaud Securities in London.

Danone rose as much as 2.2 percent to 48.48 euros in Paris trading and was up 1.6 percent as of 11:50 a.m.

Revenue excluding currency shifts and divestments rose 5.9 percent in the first half, led by growth in the baby-nutrition and bottled-water businesses. Analysts had expected 5.8 percent growth, according to the median of five estimates.

Baby Food

Sales of baby food rose about 14 percent during the first half, led by a “very strong” performance in Asia, particularly China, Danone said. The maker of Bledina baby food is tapping growth in the infant-nutrition market, which Euromonitor International expects to expand 6 percent a year through 2016.

Mead Johnson Nutrition Co., the world’s largest standalone baby formula maker, yesterday cut its revenue forecast for the year to 8 percent to 9 percent, citing slower growth in China.

Revenue from bottled water increased 4.6 percent, Danone said. The owner of the Volvic brand gets about two-thirds of the unit’s revenue from emerging markets, where consumption is rising more quickly than in developed markets. Revenue from the smaller medical nutrition unit rose 6.7 percent.

“In emerging markets, we are continuing to grow at a very brisk pace,” Chief Executive Officer Franck Riboud said.

Spanish Slowdown

In contrast, the company said it faced a steeper than anticipated slowdown in southern Europe, particularly Spain. Spanish unemployment rose to a record 24.6 percent in the second quarter, weighing on consumer confidence, a report showed today. The consumer environment in Spain will probably deteriorate further, Danone said.

The company said today it raised its stake in its Spanish unit to 65.6 percent from 57.1 percent after two minority shareholders exercised a right to sell. The consideration was

91.5 million euros in cash plus 6.1 million treasury shares.

The purchase will boost earnings per share in the first year, according to the company, which will also buy back 6.1 million shares to offset dilution from the transaction. The two shareholders who sold their stakes agreed to hold the Danone shares they’re receiving for at least three years.

The company said it’s in talks with other shareholders of the unit, though it doesn’t expect to buy out a “significant amount” of other minority investors this year.

Margin Forecast

Danone cut its profitability forecast June 19 as Spanish consumers switched to cheaper products and raw-material costs increased. The company said at the time it expects the operating margin to narrow by 0.5 percentage point in 2012 on a like-for-like basis, having previously forecast a “stable” margin.

Raw-material costs this year will increase 5 percent to 7 percent, Chief Financial Officer Pierre-Andre Terisse said.

Sales of dairy products, which account for more than half of Danone’s revenue, increased 2.1 percent in the first half. The CIS region “confirmed its return to a growth model” and second-quarter sales were higher in terms of both volume and value, the company said.

Danone said June 27 it’s raising its stake in Centrale Laitiere du Maroc to 67 percent for 550 million euros to expand in the Moroccan dairy industry.

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