UN Unilever NV

French dairy and bottled water company Danone SA (BN.FR) Wednesday said that raw material inflation should remain strong as it reported a fall in full-year profit, due to the integration of Russia's Unimilk and a rise in the cost of debt, while gains from minority interests fell.

"For 2012, the Group expects no significant improvement or decline in the macro-economic environment from the second half of 2011," said the company in a statement.

Net profit in 2011 came out at EUR1.67 billion, down from EUR1.88 billion a year earlier, while sales rose 13.6% on a reported basis to EUR19.32 billion from EUR17.01 billion, boosted by the acquisition of UniMilk and strong growth in emerging markets.

Annual underlying net profit, the company's preferred measure of earnings which excludes non-recurrent income and expenses, rose 4.5% to EUR1.75 billion, from EUR1.67 billion in 2010, broadly in line with analyst expectations of EUR1.74 billion.

Danone, which sells Evian and Volvic bottled water, said that it expects an increase of between 5% and 7% in net sales on a like-for-like basis for 2012, with a stable full-year trading operating margin and a continued rise in free cash flow, which should reach EUR2 billion.

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.

Danone's earnings before interest and taxes grew 9.2% like-for-like to EUR2.84 billion from EUR2.6 billion a year earlier, corresponding to an operating margin of 14.72%, down from 15.6% a year earlier, hit by lower margins in recently purchased UniMilk unit, but up 20 percentage points on a like-for-like basis.

On a like-for-like basis, excluding acquisitions and at constant exchange rate, sales rose 7.8%, in line with the company's guidance of between 6% and 8%, driven by a 3% increase at its main dairy division, which includes the Activia and Actimel brands, and 23.3% growth in its waters division.

In the three months to Dec. 31, organic revenue increased 7.8% compared with 2010, outpacing third-quarter organic growth of 5.9%. Swiss peer Nestle (NESN.VX) reports earnings Thursday.

Danone shares closed Tuesday at EUR48.99, valuing the company at EUR31.5 billion. The shares have 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; nadya.masidlover@dowjones.com

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