French dairy group Danone has warned that its profits will be hit by weaker margins during fiscal 2012.

Danone today (19 June) lowered its margins outlook for the financial year from “stable” to “down 50 basis points”, citing a weak performance in Southern Europe – particularly Spain – and higher commodity costs.

The group said poor European sales are being offset by a stronger performance from emerging markets, reiterating its sales outlook of 5-7% growth.

However, sales gains appear to be coming at a price. Danone has had to invest heavily in brand support and price positioning to shore-up its top line, hitting profitability.

The company also appears to be struggling to manage input costs, despite a softening commodities environment as dairy commodity prices retreat from last year’s highs.