October 18, 2011 / 6:18 AM / in 6 years

Danone confident on 2012, water still strategic

<p>French food group Danone Chief Financial Officer Pierre-Andre Terisse poses during an interview with Reuters in his office in Paris September 15, 2011. REUTERS/Charles Platiau</p>

PARIS (Reuters) - French food group Danone SA (DANO.PA) gave a confident outlook for 2012 and said its water business was “still strategic”, in response to renewed speculation it was in talks on a disposal.

The world’s largest yoghurt maker, whose brands include Actimel and Activia, said it was positive for next year as softening commodity prices, robust growth in emerging markets and the benefits from the acquisition of Unimilk in Russia would underpin growth.

Chief Financial Officer Pierre-Andre Terisse told analysts bottled water remained a strategic business for Danone, owner of Evian, Volvic and Badoit, though he declined comment on a Bloomberg report Danone was in talks with Japan’s Suntory Holdings SUNTH.UL to sell water assets.

Suntory said it was not in talks to buy the French group’s water activities.

Danone, the world’s No 2 bottled water producer, was in early talks with unnamed parties on such a deal, a source familiar with the matter had told Reuters last November.

Helvea analysts said in a note that a water disposal would be “no real surprise, given we think Danone will be interested in Pfizer’s Wyeth baby food business and might want to trade its water division in order to avoid a capital increase.”

A banking source close to the situation told Reuters in August that European food groups Nestle NESN.VX and Danone were the early front runners working on bids for Pfizer’s (PFE.N) Wyeth, worth up to $10 billion.

One sector analyst valued Danone’s water business at 5.6-6.4 billion euros.

By 1322 GMT, Danone shares gained 1.6 percent at 46.13 euros, outperforming a 0.63 percent drop in the European food and beverage sector .SX3P.

“Sentiment on Danone has been quite cautious in the run up to these results, as management (successfully) managed down expectations over recent weeks. We expect the stock to rise in relief, despite the only marginal beat to consensus,” analysts at brokerage Bernstein said in a note.

Danone reported slower sales growth in the third quarter due to sluggish dairy sales in Russia and the United States and poor water sales in Europe over the Summer, and CFO Terisse said he expected fourth-quarter trends to be “broadly in-line” with those of the third quarter.

However, he noted that commodity prices -- notably milk and plastic -- were on a “softer trend”, adding to optimism for 2012.

Danone said it still expected to grow underlying sales by 6 to 8 percent this year, having achieved 5.9 percent growth in the third quarter, slightly above expectations of 5.6 percent.

It reiterated its forecast for an increase of around 0.2 percentage points in its like-for-like 2011 operating margin.

Danone is kicking off the reporting season for large European food makers and will be followed by Nestle SA NESN.VX on October 20 and Unilever Plc/NV (ULVR.L)(UNc.AS) on November 3.

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For a comparison graphics of European food groups: r.reuters.com/dac54s

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SLOWER DAIRY GROWTH

In the dairy market, difficulties in Russia and the loss of U.S. market share were largely responsible for a well-flagged sales slowdown from 8.7 percent growth in the first half.

Overall the dairy division -- which makes around 60 percent of group sales -- saw like-for-like sales growth slow to 3.5 percent in the third quarter from 5.5 percent in the second, with a 1.5 percent decline in volumes offsetting a 5 percent increase in value.

The newly-acquired Unimilk business in Russia suffered from higher milk costs and a repositioning of the business toward higher value-added milk products and its volumes fell 11.8 percent in the quarter.

Danone has said it would focus on improving margins and building brands at Unimilk rather than growing volumes this year. “From 2012, the integration of Unimilk will allow us to capture the growth of the Russian market,” Terisse said.

He later told analysts Danone expected an acceleration of Unimilk’s top line from 2012 and its ambition remained to grow dairy sales by double digits in Russia. “We have not lost confidence by any means in this platform (Unimilk)”, he said.

Russia accounts for 11 percent of Danone’s sales and is now the group’s top market, on a par with France.

In the United States -- which accounts for 8 percent of group sales -- Danone faced strong growth in the Greek yoghurt segment, which has cannibalized other segments where Danone has a stronger presence.

To address that situation, Danone relaunched a Greek yoghurt over the summer under the Oikos name, whose initial results were excellent, Terisse said. However he told analysts it would take “a few months, probably the first half 2012” before Danone could move to double-digit sales growth in U.S. dairy.

Group third-quarter sales reached 4.81 billion euros, a reported rise of 10.5 percent and in line with the 4.81 billion average of estimates in a Reuters poll of analysts.

Editing by Lionel Laurent and Helen Massy-Beresford

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