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Dairy and bottled water company Danone SA (BN.FR) Wednesday reported an acceleration in sales growth in the fourth quarter, driven by higher water sales in the unexpectedly mild weather, yet remained cautious on top-line guidance for 2012.
Danone--which sells Evian and Volvic bottled water as well as yoghurts, baby food and medical nutrition--said that it expects sales to increase between 5% and 7% in 2012, down from last year's guidance of between 6% and 8%. It targets just a stable trading operating margin, as raw material price inflation continues, which disappointed analysts.
Like many consumer goods companies, Danone has seen slower earnings growth from mature economies, where shoppers' income is under pressure from tax hikes and public spending cuts, rising unemployment and below-inflation pay rises.
Earlier this month, Anglo-Dutch Unilever PLC (UL) warned of a difficult year ahead in a struggling global economy marked by sluggish demand in Europe and North America but growth in developing markets. Swiss peer Nestle (NESN.VX) is due to report earnings Thursday.
"Looking ahead, we anticipate no improvement in the economic environment or in consumer spending in 2012," said Danone Chief Executive Frank Riboud, adding that the company's priorities remained leveraging growth drivers, investing in its brands and managing inflation while maintaining a competitive edge.
The company reported an 11% drop in full-year net profit to EUR1.67 billion, from EUR1.88 billion, mainly due to the cost of integrating Russian diary company UniMilk (KUNM.RS) and an increase in the cost of debt, as gains from minority interests fell.
Underlying net profit, the company's preferred measure of earnings which excludes non-recurrent income and expenses, rose 4.5%--broadly in line with analysts' expectations.
Danone's earnings before interest and taxes grew 9.2%--excluding acquisitions and at constant exchange rate--to EUR2.84 billion from EUR2.6 billion a year earlier. That corresponds to an operating margin of 14.7%, down from 15.6% a year earlier, hit by lower margins in its UniMilk unit, but up 20 percentage points on a like-for-like basis.
In the fourth quarter, sales increased a higher-than-expected 7.8% on a like-for-like basis, outpacing third-quarter growth of 5.9%, as mild weather prompted a strong rise in water sales, as well as higher prices.
Over the year, total sales rose 13.6% on a reported basis, boosted by the acquisition of UniMilk and strong growth in emerging markets. Volumes in the company's main dairy division, which includes the Activia and Actimel brands, fell on a like-for-like basis but were offset by expansion in its three other divisions--water, baby nutrition and medical nutrition.
Danone said it expects free cash flow to continue to rise in 2012, up to around EUR2 billion. It plans to pay a dividend of EUR1.39 per share.
"It is slightly disappointing... that the solid growth guidance does not pull-through into an expectation of any margin improvement in 2012," said Simon Marshall-Lockyer, analyst at Jefferies.
At 0905 GMT, Danone shares were up 1.4% at EUR49.67. They've risen around 4% over the past six months, in line with the CAC-40 index.
-By Nadya Masidlover, Dow Jones Newswires; +33 1 4017 1754; firstname.lastname@example.org