By Dominique Vidalon
PARIS (Reuters) - Danone (PA:DANO) posted a better-than-expected 6.9 percent underlying rise in third-quarter sales on Wednesday, helped by improving baby food sales in Asia where the French food group is seeking to recover from a health scare last year.
The world's largest yoghurt maker, whose brands include Actimel and Activia, said it expected dairy sales in Europe, which have been hurt by sluggish consumer demand, to stabilise by the end of the year and that it was keeping its full-year profit and sales forecasts.
"Despite a difficult economic and political climate during the summer, notably with the Ukraine crisis, we are holding our course and maintaining our targets," Chief Financial Officer Pierre-Andre Terisse said on a conference call. "For the second half, profitable growth will very clearly be back."
Third-quarter like-for-like sales rose to 5.416 billion euros (4.30 billion pounds), with growth accelerating from 2.3 percent in the second quarter. Baby food sales jumped 19.2 percent like-for-like in the quarter, Danone added.
The performance beat the company-compiled average of analyst estimates of 5.8 percent growth in group sales and a 15 percent rise in baby food sales.
Danone's water and medical nutrition units also put in strong performances but the dairy division, which makes the bulk of group sales, lagged expectations, hit in particular by higher milk prices in Russia and the Ukraine crisis.
Danone, which competes with Nestle (VX:NESN) and Unilever (L:ULVR), has been seeking to rebuild its position in China after an infant formula product recall in Asia last year.
Terisse said the strong quarterly sales rise therefore came partly from a favourable year-earlier comparison, with sales in most of the Asian markets affected back to pre-crisis levels.
In China, which contributes 6 percent of group sales and was hardest hit by the crisis, sales of Dumex infant formula continued to lag expectations though demand for ultra-premium brands was strong.
Danone makes 60 percent of revenue from dairy products, a sector hit by a spike in milk prices and weak consumer spending in austerity-hit Europe.
Danone's dairy sales rose 0.7 percent in the quarter, down from 2.4 percent growth in the previous three months and lagging market expectations of a 1.1 percent rise.
The performance reflected a 7.1 percent fall in sales volumes, offset by a 7.8 percent rise in prices. The volume drop came from price rises that started in the second half of 2013 in response to higher-than-expected milk prices, particularly in Russia, and from negative sales in Ukraine.
For 2014, Danone kept its targets of like-for-like sales growth of 4.5-5.5 percent and an operating margin changing by no more than 20 basis points from 13.19 percent last year.
(Editing by James Regan)