Danone shrugged off rising commodity prices and a sluggish economy in the first quarter, delivering faster-than-expected growth in areas from baby food to bottled water.

The French maker of Activia yoghurts unveiled sales up 20.1 per cent on a year earlier, from €3.98bn ($5.76bn) to €4.78bn, driven by its dairy division.

Excluding the effects of the acquisition of Russian dairy group Unimilk last year, sales were up 8.5 per cent.

This was the fastest annual rise in three years and nearly two points ahead of analysts’ expectations.

However, the company warned that raw materials remained “on a volatile upward path”, affecting the cost of food, packaging and transport.

Pierre-André Terisse, chief financial officer, told analysts that Danone had raised its prices in the first quarter and would continue to do so throughout the year to protect its margins.

The price rises had so far had no marked impact on shipment volumes, he said.

Danone’s competitors Nestlé and Unilever have adopted a similar strategy of combating rising food costs through internal cost cuts and price rises.

But supermarkets – the groups’ biggest customers – have warned that the still-fragile economy means they will struggle to pass higher prices on to customers.

Frank Riboud, chairman and chief executive, said: “The competitive management of rising raw material prices will also be a priority for the rest of the year.”

At its last set of results in February, the company boasted it had more room to boost its prices after a concerted effort to manoeuvre them downwards in a bid for market share in 2009.

Much of the growth in sales came from outside Europe, particularly Asia, which delivered sales of €661m, up 18 per cent.

Emerging economies helped the water division, underpinned by the Evian and Aqua brands, rise by 13.3 per cent, the fastest-growing category within Danone.

The company repeated its full-year target of a 6 to 8 per cent rise in sales, while preserving the operating margin.

Shares in Danone rose €0.83 to €47.66, putting them at the highest level since near the start of 2011.

The Financial Times