* H1 operating margin 11.27 pct vs 13.34 pct in H1 2013
* Q2 like-for-like baby food sales -9.2 pct vs -7.7 pct in
* Keeps full year profitability and sales goals
* CFO says Danone 2020 plan is "not a strategic review"
(Recasts with CFO call to analysts, shares, analyst comments)
By Dominique Vidalon
PARIS, July 25 Food group Danone is
confident of hitting full-year targets despite a weak first-half
as it looks to a stabilisation of European dairy revenues this
year and the launch of new baby food products in China.
The world's largest yoghurt maker posted a
worse-than-expected 10 percent fall in first-half operating
profit on Friday after sluggish sales of baby food in Asia and
dairy products in Europe took their toll.
Danone, whose recent woes have refocused investor attention
on whether it can survive on its own, said it was working on a
plan to ensure long-term growth but insisted the project was not
a "strategic review" involving any major deals.
The Wall Street Journal said earlier this week that Danone
was looking at whether to pursue a big alliance to gain more
muscle on the global stage.
Danone, which competes with the much larger Nestle
and Unilever, said it still expected to achieve
like-for-like sales growth of 4.5-5.5 percent this year with its
operating margin changing by no more than 20 basis points from
13.19 percent in 2013.
Danone is aiming to rebuild its position in China after an
infant formula product recall in Asia last year. The dairy
sector, which provides 60 percent of revenue, has been hit by a
spike in milk prices and weak consumer spending in austerity-hit
Europe, where Danone plans to shut three plants.
By 1153 GMT Danone shares were down 0.29 percent at 55.78
euros, broadly in line with the European consumer goods sector
Analysts have been sceptical that Danone will see a large
enough rebound in the second half to meet its full-year targets,
and Friday's comments did not entirely dismiss those fears.
"The confirmation of the guidance should not rule out the
main short-term concerns of the market about a warning," Natixis
analyst Pierre Tegner said.
Danone's first-half operating profit fell 10 percent to
1.180 billion euros ($1.6 billion), with like-for-like sales
rising 2.2 percent to 10.467 billion.
Its first-half operating margin fell 159 basis points to
11.27 percent of sales. The results were below a company
compiled consensus of analysts for first-half operating profit
of 1.208 billion euros and an operating margin of 11.40 percent.
Second quarter figures showed a slowdown in dairy sales as
well as a worse than expected fall in baby food sales. The water
and medical nutrition units put in robust performances.
Danone's dairy division sales rose 2.4 percent in the second
quarter after 3.9 percent growth in the first.
This reflected a 7.4 percent fall in sales volumes, offset
by a 9.8 percent rise in prices. The volume fall came from price
rises that started in the second half of 2013 in response to
higher-than-expected milk prices, particularly in Russia.
China contributes 6 percent of group sales but Danone faced
a variety of problems there last year, including an infant
formula product recall in August 2013 due to a health scare.
Baby food sales fell 9.2 percent in the second quarter,
worse than the 7.1 percent drop analysts had expected. Terisse
reiterated that baby food sales volumes in China will be back to
70 percent of their pre-crisis levels by the end of 2014.
NO STRATEGIC REVIEW
Danone's challenges have refocused analysts attention on its
relatively small size compared to giants such as Swiss rival
Nestle. Analysts have cited Nestle and Pepsico as the
most likely potential buyers.
Danone CFO Pierre-Andre Terisse said on Friday the company
was working on an internal plan dubbed "Danone 2020" to ensure
long-term growth, but stressed during a conference call with
analysts: "There is no strategic review at Danone."
The plan's highlights were given to analysts at a June
seminar in New York. It mainly entails organisational changes to
simplify and accelerate decision-making and adapt to
competition, notably in Europe, plus the centralisation of
procurement to reduce exposure to dairy price volatility.
A group spokeswoman told Reuters this week that Danone would
update its top managers about the plan at their annual gathering
in Evian, France, in September.
($1 = 0.7426 Euros)
(Reporting by Dominique Vidalon; Editing by Andrew Callus and