Adds monetary estimate in paragraphs 1,4, US detail in paragraphs 13-14

By Dominique Vidalon and Alexander Marrow

PARIS, Feb 20 (Reuters) - French food giant Danone DANO.PA delivered fourth-quarter sales growth above expectations on Friday but said the widespread recall of baby formula could hit sales by up to 70 million euros ($82.4 million) in the next quarter.

The group, whose brands include Aptamil formula and Evian water, delivered a strong performance in Asia in the fourth-quarter though U.S. growth was weaker than expected.

The baby formula recall has hit companies including Danone and Nestle NESN.S due to possible contamination with the toxin cereulide, with investors keen to understand the extent of the financial and reputational impact.

"The recall of several industry players at the same time has created some disruption on the shelf," said CFO Juergen Esser, anticipating a one-off impact on first-quarter sales of 0.5%-1% for the group that also makes Activia yoghurt and Volvic water. That impact, which Danone said was not material, was estimated at 35 million to 70 million euros.

Danone, which has recalled products across Europe and the Middle East, said its assessment would be finalised once recalls were completed.

The group, whose shares were 0.6% lower by 1325 GMT, is particularly exposed to the formula recall as around 17% of total profits come from infant formula in China, compared with less than 2% for Nestle, Jefferies analysts say.

CHINA 'EXCEPTIONAL', NEED TO 'STEP UP' IN THE U.S.

Danone gave 2026 guidance in line with its mid-term aims of like-for-like sales growth of 3-5%, with recurring operating income growing faster than sales.

Danone described growth in China, North Asia & Oceania as "exceptional", with sales growth in the fourth quarter of 10.4% led by rapidly increasing volumes, although analysts noted this was below their expectations.

The U.S. market did not meet the company's expectations. "We need to step up our game," CEO Antoine de Saint-Affrique said, noting leadership changes had been made to address underperformance.

CFO Esser told Reuters the company was well positioned to benefit from health trends in gut health and protein and the impact on consumption of demand for weight-loss drugs.

Danone's Oikos brand has launched a high-protein smoothie and vitamin-heavy drink to target weight-loss drug users in the U.S. Beyond protein, Esser said the Akkermansia company it acquired in 2025 was helping Danone target people with gut inflammation problems.

"Our categories are growing faster than the average of food and beverage, and now we want to capture that opportunity," Esser said.

Danone reported 2025 sales of 27.28 billion euros, a like-for-like rise of 4.5%, and grew its recurring operating margin to 13.4% from 13% in 2024. With cash flow of 2.8 billion euros in 2025, above analyst expectations of 2.5 billion, Danone said it planned to raise its dividend by 4.7% to 2.25 euros per share.

($1 = 0.8493 euros)

(Reporting by Dominique Vidalon in Paris and Alexander Marrow in London; Editing by Benoit Van Overstraeten, Sonali Paul and Elaine Hardcastle)

((dominique.vidalon@thomsonreuters.com; +33149495432; Reuters Messaging: dominique.vidalon.reuters.com@reuters.net/))