French food group Danone enjoyed strong second quarter sales in China, with baby milk and nutrition products rising more than forecast
That is due to distrust of local milk products after scandals there.
It did however have to slash prices of its baby milk formula in China by up to 20 percent followed an investigation by the Beijing government into possible price-fixing and anti-competitive behaviour in the sector.
“Price reduction in China will have an impact but a manageable impact. Long term, we see China and Asia as strong growth profiles but we are prepared for ups and downs. We are managing it,” Finance Chief Pierre-Andre Terisse told analysts.
At the same time the world’s largest yoghurt maker kept its full-year forecast for higher sales but weaker profitability as it tries to offset sluggish demand in Europe by expanding in fast-growing emerging markets in Asia and Latin America.
In the second quarter its core dairy business did start to pick up in recession-hit Europe.
Worldwide, the dairy division, which includes brands such as Actimel and Activia and makes up nearly 60 percent of revenue, saw sales grew 2.6 percent in the second quarter, an acceleration from 0.7 percent growth in the first quarter.
Danone said that reflected double-digit sales growth in Russia and North America but also early signs of stabilisation in Europe.
The company has been cautious about prospects for a recovery in the region. It said dairy sales in Europe would not improve before the second half, when new product launches and price cuts in countries such as Spain kick in.
Danone, which competes with Nestle and Unilever, is the most exposed among the big food groups to the euro zone crisis and is under pressure from US activist shareholder Nelson Peltz to improve its performance.