July 25, 2019 / 6:25 AM / a month ago

UPDATE 1-Food group Danone's Q2 sales accelerate as China baby food arm improves

* Q2 sales up 2.5% l-f-l vs 2.2% expectations

* H1 operating margin 14.69% vs 14.27% in H1 2018

* China baby food back to growth faster than expected

* Danone keeps 2019 and 2020 goals (Adds details, CFO quote)

By Dominique Vidalon

PARIS, July 25 (Reuters) - French food group Danone said sales growth accelerated in the second quarter in all its business lines, beating expectations, and baby food products sales in China were back into positive territory after three quarters of decline.

Danone, which is the world’s largest yoghurt maker and has brands such as Actimel and Activia, delivered higher first half profits thanks to efficiency savings and reiterated it was confident of delivering its financial targets for 2019 and 2020.

First-half operating profit reached 1.858 billion euros ($2.1 billion), marking a like-for-like rise of 6.4%, slightly above a company-compiled median of analyst estimates for 1.847 billion euros.

This translated into a margin of 14.69% of sales against 14.27% a year-ago.

Second-quarter like-for-like sales, rose 2.5% - also above analysts’ expectations for 2.2% growth.

This marked an acceleration from 0.8% growth in the first quarter when sales were hit by weaker demand for infant formula products in China and a consumer boycott in Morocco.

Danone is targeting group like-for-like sales growth of around 3% and an operating margin above 15% for 2019.

That in turn would put Danone on track for its 2020 goals of an operating margin above 16% and like-for-like sales growth of 4-5%.

FASTER-THAN-EXPECTED IMPROVEMENT IN CHINA

Danone’s ‘Essential Dairy & Plant’-based division reported sales growth of 2.2%, with Europe delivering slightly positive growth as France and Spain stabilised for the first time in the last seven years.

Morocco also posted dairy sales growth of around 10% as its Centrale Danone unit won back market share following a consumer boycott that had affected sales in previous quarters.

Meanwhile, sales of Danone’s ‘Early Life Nutrition’ products in China returned to growth in the quarter, helped by a focus on more premium products and an increase of sales via E-commerce.

“This was ahead of our expectations,” Danone’s finance chief Cecile Cabanis told reporters.

The recovery in China followed declines of 15% in the first quarter of 2019 and 10% in the fourth quarter of 2018 and 20% percent in the third quarter last year, partly due to a lower birth rate in China and high year-ago comparables.

China is an important region for Danone, contributing about 30 percent of sales to the ‘Early Life Nutrition’ business, which makes infant formula and general baby food products.

Danone had expected the business in China to return to growth in the second half of 2019.

$1 = 0.8981 euros Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta

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