UPDATE 2-Higher prices, animal feed sales boost Nutreco

(Adds shares, analyst comment, ceo interview)

By Alexandra Hudson

AMSTERDAM, July 31 (Reuters) - Dutch food group Nutreco NV (NUTR.AS) beat estimates with first-half operating profit of 80.1 million euros ($124.8 million), boosted by higher selling prices and growth in animal feed, sending its shares higher.

Sales rose 38.4 percent to 2.3 billion euros, the group said on Thursday, noting a substantial part of the rise came from higher raw materials prices passed on to customers. Nutreco also benefitted from inventory and contract positions.

The world's largest fish feed producer and number five animal feed producer had been seen reporting earnings before interest and tax of 60 million euros on sales of 2.1 billion, according to the average forecast in a Reuters poll of seven analysts.

"We posted a substantially higher operating result, driven by the organic growth in animal nutrition as well as the contributions from recent acquisitions," said Chief Executive Wout Dekker.

He confirmed Nutreco was on track to meet its target of earnings before interest, tax and amortisation (EBITA) of 230 million euros by 2010 -- twice the level in 2006.

By 0725 GMT shares traded 5.2 percent higher at 42.2 euros, having risen as high as 43.95 euros -- their highest in more than a month. The stock had fallen last Friday to its lowest since late January.

HUGE WINNER

Record prices for grain, which have seen farmers choosing to sell their crops instead of feeding them to their animals, have boosted Nutreco's sales of manufactured feed.

Although input prices have soared, Nutreco has been able to pass increases on to customers, while cutting costs by sourcing raw materials more effectively.

"Nutreco has become a huge winner in the inflationary input cost climate," said analyst Jeroen van Harten at ABN AMRO.

Strength in the animal nutrition unit offset weakness in fish feed, where profit dropped 40 percent after salmon farms in Chile were hit by disease.

However Nutreco said it expected the total salmon feed market volume to be in line with 2007 by the end of 2008.

Nutreco has a strong war chest to spend on acquisitions.

Dekker told Reuters in an interview the group would focus on buying outside the European Union and saw plenty of potential acquisition targets. He added Nutreco would not return cash to shareholders.

Many analysts see Nutreco as a defensive play with good growth prospects as global consumption of meat and fish rises.

Prior to Thursday's results its shares had lost 11.5 percent of their value since the start of May, driven down by wider market weakness. They traded at around 11 times expected 2008 earnings, in line with a sector average for the FTSE European Farming and Fishing sector, according to Reuters data. (Editing by Paul Bolding and David Holmes)