(Adds details, background)
* Q2 operating profit flat at 171 million euros
* 2012 operating profit seen down 20 percent to 800 mln eur
* Dividend payout policy of 50 pct of net profit reiterated
VIENNA, July 25 (Reuters) - Austrian energy group Verbund expects a bigger drop in earnings this year than analysts had anticipated, and said on Wednesday it said might not meet its targets if the European economy deteriorated further.
The company said its operating profit and net result had both increased by 12 percent in the first half due to significantly higher hydropower generation and its hedging strategy, but second-quarter results came in below estimates.
Verbund said it expected to make operating profit of around 800 million euros ($967 million) and net profit of around 350 million euros this year, compared with analysts' estimates of 920 million and 469 million in a Reuters poll.
The hydropower specialist, which made an operating profit of 1 billion euros last year, had declined to give a full-year outlook until now, citing an uncertain macroeconomic environment that was making for difficult condtions in the energy industry.
On Wednesday, Verbund said: "Assuming average water supply in the second half of 2012, we expect an operating result of around 800 million euros and a group result of around 350 million euros for the entire year."
"However, if the conditions in the overall economy and the energy sector in Europe continue to worsen, additional negative effects on earnings in the second half of 2012 cannot be ruled out," it added.
In the second quarter, Verbund also missed analysts' estimates with flat operating profit of 171 million euros. The group result of 78.8 million euros, an improvement of 16 percent, was broadly in line with expectations.
Verbund reiterated its dividend policy would aim for a payout ratio of about 50 percent of the group result. ($1 = 0.8275 euros) (Reporting by Georgina Prodhan; Editing by Michael Shields)