By Dominique Vidalon
PARIS (Reuters) - French food group Danone revealed a worse-than-expected 10 percent fall in first-half operating profit on Friday, hit by weak sales of dairy products in Europe and baby food in Asia.
The world's largest yoghurt maker, whose brands include Actimel and Activia, nevertheless maintained its full year profit and sales goals, banking on a stabilisation of European dairy revenues by the end of the year and on the launch of new baby food products in China.
Danone is aiming to rebuild its position in China after an infant formula product recall in Asia last year. The dairy sector, where the company derives 60 percent of its 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.
"Our agenda for the second half of the year is exactly the same: we will stay focussed on reaching our 2014 targets... The group anticipates a return to strong, sustainable, profitable growth beginning in the second half," the statement said.
Chief Financial Officer Pierre-Andre Terisse also told journalists during a conference call that Danone was working on a plan dubbed "Danone 2020" to insure long-term growth.
The plan, whose highlights were given to analysts at a June seminar in New York was "not a review of the group's asset portfolio" contrary to some media reports, Terisse said, but an "internal process to identify growth boosters within the group,"
Danone, which competes with Nestle and Unilever said first-half operating profit fell to 1.180 billion euros (93 million pounds), with like-for-like sales rising 2.2 percent to 10.467 billion.
First-half operating margin fell by 159 basis points to 11.27 percent of sales.
The result was 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.
For 2014, Danone said it kept a target of like-for-like sales growth of 4.5-5.5 percent and operating margin changing by no more than 20 basis points from 13.19 percent a year earlier.
In the second quarter alone, the maker of Bledina baby food and Evian water said sales rose 2.3 percent like for-like, following a 2.2 percent increase in the first quarter. This was below analysts forecast for a 2.6 percent like-for-like quarterly growth, and reflected a slowdown in dairy sales as well as a worse than expected fall in baby food sales.
Danone's dairy division sales grew 2.4 percent in the second quarter, a slowdown from 3.9 percent growth in the first quarter.
This reflected a 7.4 percent fall in sales volumes offset by a 9.8 percent rise in prices. The volume decline came from price increases that started in the second half of 2013 in response to higher than expected milk prices, particularly in Russia.
Elsewhere in Europe, dairy volumes also fell, as Danone passed onto customers rising milk prices in some countries.
China contributes 6 percent of group sales but Danone has faced a variety of problems there last year.
In August 2013 it had to recall infant formula products due to a health scare that began with concerns raised by New Zealand-based supplier Fonterra.
Baby food sales fell 9.2 percent in the second quarter, which was worse than the 7.1 percent decline analysts had expected.
In China Danone has re-launched the Dumex standard infant formula band at a discount to reach more customers. It has also launched an ultra-premium brand under the name Nutrilon Platinum, and in mid-April Dumex International, a range made in Europe specifically for the Chinese market.
Nutrilon achieved rapid growth in ultra premium but Dumex sales fell "slightly short of expectations", Danone said.
(Reporting by Dominique Vidalon; Editing by Andrew Callus)