Although expansion in emerging markets was dynamic it was also volatile, the group said while acknowledging that it is pushing hard into these fast-growing markets.
Reporting that in its home markets of France and more broadly Europe, conditions had shown signs of slight improvement in the second quarter. The group said its net profit for the first six months reached €873m.
However, when the figures were adjusted on a comparable asset basis with performance in the same period last year, the net figure fell by 1.3%.
Finance director Pierre Andre Terisse told journalists that the setback reflected a fall in operating margins, increased taxation in France, and unfavourable exchange rate changes mainly regarding the Argentinian peso and Brazilian real.
"These are good results which are very much in line with our targets and are even a bit better," he said.
In the first half of the year, sales rose by 5.6% (or by 6.0 percent on a comparable basis) to just over €11bn
Chief executive Franck Riboud said in a statement: "Danone confirms its good start to the year in the context of the economy and of consumption, which remains very difficult in Europe and sometimes volatile in emerging markets. However, the business climate in Europe had shown the first signs of stabilising in the second quarter," he said.
Sales rose by 3.5% in a 12-month comparison although they fell by 3.0% on a comparable basis. In the first quarter sales had fallen by 5.0%.
Investors were pleased that Danone's internal growth, on a comparable asset base, had risen faster than expected in the second quarter.
One analyst who declined to be named said: "Good news. Danone accelerated its growth in the second quarter but the outcome of the results does not reflect this and margins are shrinking markedly within the two big divisions in the group," referring to dairy products and water.
The group held to its targets for the full year, saying it expected sales to grow by at least 5.0% and its current operating margin to fall by between 0.3% and 0.5%.
At the beginning of the year, Danone launched a programme to cut costs that would lead to 10% of its managers in Europe, or 900 people, losing their jobs over two years.
"The objective is to return the company to stable and lasting growth in 2014 by adapting the business in Europe," Terisse stressed.
In the second quarter, the drivers for growth were markets in North America where sales rose by 7%, and the emerging markets of Asia, the Middle East and Latin America where they rose by 18%.
Sales of fresh dairy products, rose by 4% and of bottled water by 9% while sales of baby products were up by 12%.
Chinese authorities have begun investigations into alleged price-fixing by foreign companies selling powdered milk for babies in China. Before the outcome is known, Danone's subsidiary in China, Dumex, undertook at the beginning of July to reduce prices for its powdered baby milk by between 5% and 20%.
Source: AFP via I-Net Bridge
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