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 euro zone debt crisis than rivals Nestle and Unilever and is under pressure from a U.S. activist shareholder to improve its performance.
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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 percent in 2012. It did not give a target for 2014.
"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 CEO Franck Riboud said in a statement.
The job cuts, around 3.3 percent of the French company's European workforce, will be made over two years and are part of a wider plan to save 200 million euros..
In December, Danone had a global workforce 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.
SHARES UP ON FOURTH QUARTER SALES
Danone shares gained 4.5 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 Activia and Actimel yoghurt, 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 the sales, 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 French 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 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 Nestle's 18.1 times.
Nelson Peltz, co-founder of U.S. investment firm Trian Fund Management LP, bought a 1 percent 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.
Danone's dairy division, which accounts for about 60 percent of group sales and nearly 50 percent of profits, is now the group's slowest-growing business.
The division posted a sales rise of 2 percent 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.
(Reporting by Dominique Vidalon; Editing by Erica Billingham)