Danone said it will cut around 900 jobs to cope with the downturn in southern Europe that is hurting its core dairy business and aims to return to more profitable growth next year.
The world's largest yoghurt maker is more exposed to the eurozone debt crisis than rivals Nestle and Unilever and is under pressure from U.S. activist shareholder Nelson Peltz to improve its performance.
Chief Executive Franck Riboud asked shareholders to give him more time to revive Danone's dairy division, its slowest-growing business that accounts for nearly half of group profit.
"We are doing our job. We are industrialists and only industrialists," he told a news conference on Tuesday.
The French company said it would focus on product innovation and renewal to justify the brand premium its dairy products such as Activia and Actimel yoghurt command over private labels.
"Abandoning our European pillar is out of the question. We must fix Europe, and the goal is to boost volumes, and then margins will follow," Riboud said.
Danone predicted that its group operating profit margin would drop by between 30 and 50 basis points this year, having fallen 50 basis points to 14.18 percent in 2012.
"I hope that Danone's margin will resume growth in 2014 and that we will return to the (sales) growth levels we are used to," Riboud said.
The job cuts, around 3.3 percent of the Danone's European workforce, will be made over two years and are part of a wider plan to save 200 million euros.
This entails cutting management and administrative functions and does not involve plant closures.
In December, Danone had a global workforce of 102,000, including 27,000 in Europe.
SALES GROWTH LAG RIVALS
Danone shares climbed 5.3 percent, the biggest gainer on the FTSEurofirst 300 index of European blue-chip stocks, after fourth-quarter sales rose more than forecast.
The maker of Evian water and Bledina baby food said underlying 2012 sales rose 5.4 percent to 20.87 billion euros, above analysts' forecasts of 20.75 billion euros compiled by Thomson Reuters I/B/E/S.
But sales growth, at the low end of Danone's own 5-7 percent forecast range, lagged the 5.9 percent achieved by Swiss rival Nestle and the 6.9 percent by Britain's Unilever.
Danone has set a goal of underlying sales growth of at least 5 percent for this year.
The dairy division posted a sales rise of 2 percent in 2012 against double-digit growth for water and baby nutrition.
Dairy sales have fallen by 10 percent in Spain, Italy, and Portugal — all in recession — since the third quarter, finance chief Pierre-Andre Terisse said. There had been zero growth in France, he added, warning that the first quarter would be difficult.
Danone has started to cut its prices, notably in Spain, in response to falling demand.
The company, which has around 38 percent of sales in western Europe, is more exposed to the region's debt crisis than other large food groups that have more of their business in faster-growing emerging markets.
Danone shares trade at 15.9 times estimated 2013 earnings, at a discount to Unilever's 18 times and Nestle's 18.1 times.
Trian Fund Management LP, Peltz's U.S. investment firm that owns 1 percent of Danone, declined to comment on its results.
Peltz, a billionaire businessman who often challenges companies he considers undervalued or poorly managed, has said he supports Danone's management.
But he has argued that improvements are possible through boosting operating margins, cutting more costs and abstaining from mergers.
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