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File photo of a Danone yogurt product.

Fred Lum/Fred Lum/The Globe and Mail

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 yogurt maker is more exposed to the euro zone debt crisis than rivals Nestlé and Unilever and is under pressure from a U.S. activist shareholder to improve its performance.

Danone on Tuesday predicted that its operating profit margin would drop by between 30 and 50 basis points this year, having fallen 50 basis points to 14.18 per cent in 2012. It did not give a target for 2014.

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"2013 will be a year of transition, with vigorous development in business in our growth markets and a drive to strengthen operations in Europe," chairman and chief executive officer Franck Riboud said in a statement.

The job cuts, around 3.3 per cent of the French company's European work force, will be made over two years and are part of a wider plan to save €200-million.

In December, Danone had a global work force of 102,000, including 27,000 workers in Europe.

The company said on Tuesday that consumer demand would continue to fall in Europe, while the cost of major raw and packaging materials would remain high this year.

Danone shares gained 4.5 per cent, the biggest gainer on the FTSEurofirst 300 index of European blue-chip stocks, after fourth-quarter sales rose more than forecast.

The maker of Activia and Actimel yoghurt, Evian water and Bledina baby food said underlying 2012 sales rose 5.4 per cent to €20.87-billion, above analysts' forecasts of €20.75-billion compiled by Thomson Reuters I/B/E/S.

But the sales, at the low end of Danone's own 5-7 per cent forecast range, lagged the 5.9 per cent achieved by Swiss rival Nestlé and the 6.9 per cent by Britain's Unilever.

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Danone has set a goal of underlying sales growth of at least 5 per cent for this year.

The French company, which has around 38 per cent of sales in western Europe, is more exposed to the region's debt crisis than other large food groups which 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 Nestlé's 18.1 times.

Nelson Peltz, co-founder of U.S. investment firm Trian Fund Management LP, bought a 1-per-cent stake in Danone last year.

The billionaire businessman, who often challenges companies he considers undervalued or poorly managed, 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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Danone's dairy division, which accounts for about 60 per cent of group sales and nearly 50 per cent of profits, is now the group's slowest-growing business.

The division posted a sales rise of 2 per cent in 2012 against double-digit growth for water and baby nutrition.

Dairy results are particularly weak in Spain where cash-strapped shoppers are switching to cheaper private labels as the country struggles with its second recession in three years.

Danone has started to cut its prices, notably in Spain, in response to falling demand.

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