Diageo H1 profits slip

Improved second quarter sales helped Diageo to beat analyst estimates, but net sales at the world’s biggest drinks company still recorded a 2% drop for the six months until the end of December 2009.

Operating profit fell 6% as the company battled against struggling economic and consumer environments in many markets.

Lower shipment levels in US spirits led to volumes slumping by 4% in North America, with net sales down 6% and operating profit declining by 2%

Volumes were down 2% in Europe, with net sales down 5% and operating profit dropping 3%.

Diageo said of the European market: “The continued consumer shift from on-trade to off-trade accelerated in many markets during the period.”

Volume and net sales grew in Great Britain as a result of a particularly strong Christmas performance in the off-trade. Volume and net sales also grew in southern Europe, led by Greece and Turkey, while volume also grew in Russia.

Net sales declined in Spain and Ireland, reflecting the continued slowdown of the industry, particularly in the on-trade.

Volume sales at the international unit rose 2%, helped by the performance of Guinness in Africa and Johnnie Walker whisky in Latin America. Profit in the region rose 16%.

Asia Pacific volume fell 1%, compared with an 11% drop last year, while operating profit rose 5%.

Diageo’s first-half net income declined 10% to £1.02 billion.

Chief executive Paul Walsh said: “As we had anticipated this was a challenging six months. The economic and consumer environment remained weak in many markets and we faced a difficult comparison against Q1 last year yet the second quarter did show a return to growth.”

Walsh added: “We are maintaining our guidance for low single digit organic operating profit growth for the full year.”

Alan Lodge, 11.02.2010