Milk price in focus as Danone seen outpacing rivals

* Danone first of large Euro food groups to report results

* H1 sales seen at 9.74 bln euros, up 16.5 pct

* H1 EBIT seen at 1.38 bln euros, up 8.1 pct

* Focus on higher input costs, H1 margin under pressure

* Expected to reiterate annual targets

By Dominique Vidalon

PARIS, July 28 (Reuters) - France's Danone is set to confirm its status as Europe's fastest-growing large-cap food company when it posts first-half sales on Thursday, with higher commodity costs slightly denting its operating margin.

The world's largest yoghurt maker with brands such as Actimel and Activia is the first among European peers to report interim results, with rivals Unilever and Nestle following on Aug. 4 and Aug. 10.

"We expect Danone will have the best volume/price mix, which shows Danone's current strength to grow volumes and protect margins despite higher input costs," said MainFirst Bank analysts in a note.

Europe's food groups are grappling with soaring costs for coffee, milk, grain and crude oil and are attempting to offset the impact by passing the costs on to consumers through higher prices and by making internal cost savings.

Danone is seen posting first-half sales of 9.74 billion euros ($14.15 billion), a reported rise of 16.5 percent, according to an I/B/E/S ThomsonReuters poll of 10 analysts.

Operating income is seen at 1.38 billion euros, up 8.1 percent, according to the same poll.

This would translate into an operating margin of 14.2 percent of sales against 15.3 percent in first-half 2010.

In addition to input costs, Danone faces slight margin dilution from last year's acquisition of Russian dairy group Unimilk and disruption from the March 11 earthquake and tsunami in Japan, analysts said.

Danone has forecast input costs could increase 6-9 percent this year, with milk being its main raw material.

To combat higher commodity costs, Danone raised its prices during the first quarter and said it would continue to do so. As a result, its operating margin is expected to improve from the second half.

For the full year, Danone has a target of 6-8 percent like-for-like sales growth and an operating margin up 0.2 percent at 15.4 percent, which analysts expect the group to reiterate on Thursday.

(Additional reporting by Noelle Mennella in Paris; Editing by David Hulmes)