April 19, 2016 / 10:47 AM / 2 years ago

UPDATE 2-Danone's sales rise as dairy product demand revives

* First-quarter sales up 3.5 pct vs forecast 3.2 pct

* Keeps full-year sales, profit goals

* Sees dairy improvement in second quarter

* Shares up 4 pct (Adds CFO comments, shares, analyst)

By Dominique Vidalon

PARIS, April 19 (Reuters) - Danone on Tuesday reported stronger than expected first-quarter sales and said it was on track to deliver higher sales and profits this year despite challenging conditions in Brazil and Russia.

The world’s largest yoghurt maker, whose brands include Actimel and Activia, reported a 3.5 percent increase in first-quarter like-for-like revenue, on the back of robust baby food sales in Asia, stronger dairy product demand in North America and a better than expected performance at its water division.

This beat a company-compiled average of analyst estimates of 3.2 percent like-for-like growth in group sales.

Danone’s shares rose nearly 4 percent.

The company, which competes globally with Nestle and Unilever, has had to cope with difficult market conditions, including in Europe, plus the impact of food safety scares in Asia.

Danone’s first-quarter performance lagged its rivals, with Unilever’s first-quarter sales up 4.7 percent and Nestle producing sales growth of 3.9 percent.

Emmanuel Faber, who took over as chief executive in October 2014, is trying to return Danone to profitable and sustainable growth by 2020, reviewing its business in China and overhauling its dairy division in Europe, where it has cut costs and launched new products.

“We continue to view Danone as much more robust than in the past and continue to see Danone 2020 as a coherent medium-term strategy,” Societe Generale analysts said in a note, referring to Faber’s growth plans.

Faber said the first-quarter performance included progress on Danone’s dairy agenda, with what he described as a re-acceleration in the United States and sequential improvement in Europe.

Sales of dairy products, which account for the bulk of the group total, grew 2.3 percent in the first quarter. A 4.4 percent rise in prices outpaced a decline in volumes largely due to Russia and Brazil, where growth is slowing.

In Europe, Danone said it was relaunching the Danonino, Actimel and Activia brands, which will drive an improvement in the second quarter and help to stabilise dairy sales in the region by the end of the year.

Baby food sales rose 4.8 percent in the quarter, with sales in China driven by demand for international brands of ultra-premium baby food.

Finance chief Cecile Cabanis said a new tax on online baby formula imports in China should not have a major impact on demand as brand and product origin had more influence on consumers.

The water business delivered growth of 3.9 percent, beating expectations for 2 percent, thanks to strength in Europe, Latin America and Asia, but excluding China where Danone is cutting inventories of its Mizone drink.

Danone kept its 2016 target for like-for-like sales growth of between 3 percent and 5 percent and an improved operating margin from last year’s 12.91 percent. ($1 = 0.8833 euros) (Reporting by Dominique Vidalon; Editing by David Goodman and Jane Merriman)

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