July 27, 2018 / 6:19 AM / 22 days ago

UPDATE 1-Food group Danone's Q2 sales growth slows as Morocco boycott weighs

* H1 operating profit up 7.9 pct

* Q2 sales up 3.3 pct vs 4.9 pct growth in Q1

* Morocco sales down 40 pct in Q2, Brazil strike also weighs

* Danone keeps 2018 financial goals (Adds details from statement, call)

By Dominique Vidalon

PARIS, July 27 (Reuters) - French food group Danone kept its annual financial goals although revenue growth slowed in the second quarter, reflecting lost dairy sales stemming from a consumer boycott in Morocco and a truck strike in Brazil.

Chinese demand for baby food and sales from its water division, however, remained solid and its dairy business in north America returned to growth in the second quarter.

Danone also posted a 7.9 percent rise in first-half operating profit, helped by cost control and synergies from its takeover of U.S organic food maker WhiteWave last year.

Danone, which is the world's largest yoghurt maker and has brands like Actimel and Activia, expected the boycott in Morocco, which cut sales by 40 percent in the second quarter, to continue and to weigh on the second half performance.

Danone said last month that its local dairy firm Centrale Danone had lost more than 50 percent of its market share in Morocco in fresh milk, due to the boycott.

The boycott was launched earlier this year against what protesters in Morocco say are unfair prices set by large groups linked to a business and political elite, or foreign brands.

Nevertheless, Danone's chief financial officer Cecile Cabanis said Danone was capable of offsetting the challenges caused by the problems in Morocco.

"We are entering the second half with an operating model capable of offsetting these headwinds," Cabanis told reporters.

Danone's first-half operating profit reached 1.784 billion euros ($2.1 billion), a like-for-like rise of 7.9 percent, which was in line with a company-compiled median of analyst estimates for 1.785 billion euros in profit.

Second-quarter like-for-like sales, rose 3.3 percent - slightly above analysts' expectations for 3.1 percent growth.

This marked a slowdown from 4.9 percent growth in the first quarter but beat the 2.6 percent achieved by rival Nestle in the second quarter.

Danone, which is targeting an operating margin above 16 percent and like-for-like sales growth of 4-5 percent by 2020, reiterated its expectation for a double-digit rise in 2018 underlying earnings per share (EPS), excluding the impact of the sale of a stake in Japan's Yakult.

Along with consumer goods rivals such as Nestle and Unilever , Danone has come under investor pressure to improve results and it needs to deliver on 2020 profit margin and sales growth targets set last year.

Earlier this month, Unilever said it expected sales growth to accelerate later this year, as Unilever pushes through price rises to offset higher commodity costs.

Danone's purchase last year of WhiteWave, which makes almond milk and organic products, is intended to boost profit margins, given WhiteWave's generally affluent clientele, while Danone has also been cutting costs.

$1 = 0.8588 euros Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta

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