Diageo misses targets with 9% earnings rise

Diageo missed forecasts with a 9 percent rise in first-half earnings due to poor performance in debt-hit Greece, Ireland and Spain, sending shares in the world’s biggest spirits group lower yesterday.

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Diageo missed forecasts with a 9 percent rise in first-half earnings due to poor performance in debt-hit Greece, Ireland and Spain, sending shares in the world’s biggest spirits group lower yesterday.

The British maker of Smirnoff vodka, Johnnie Walker whisky and Guinness beer said sales in the last six months of 2010 fell 13 percent in those countries – where it would look to trim costs and marketing – with no early recovery seen in 2011.

A weak European performance weighed heavily as the group decided not to raise its annual profit target despite recovering markets in Latin America, Africa and Asia, and signs of improvement in the US, its biggest market.

Diageo shares fell as much as 5 percent before trading off 2.8 percent at £12.18 (R141) before midday in London yesterday to be the second-worst performer in the FTSE 100 index, and dragging down rival Pernod Ricard 2.5 percent.

“A small miss; no substantive mention of cost saving or restructuring, unchanged and uninspiring guidance… we regard this as a missed opportunity by Diageo,” said analyst James Edwardes-Jones at broker Execution.

“A poor result with further hangovers to come,” said analyst Martin Deboo at Investec Securities.

Diageo chief financial officer Deirdre Mahlan said Europe had been more challenging than the group had envisaged in the last three months of 2010, and she expected little change in early 2011.

“We expect southern Europe will remain challenging in our second half,” she told a results briefing.

The European region produces nearly a third of the group’s profit. Spain and Ireland are two of Diageo’s three key markets in Europe along with Britain, which together make up around half of the group’s European sales.

The group left its annual profit target unchanged from last summer, when it said it was looking for higher growth in the year to June 2011 than the 2 percent rise in underlying operating profit in the year to June 2010.

The group posted earnings up 9 percent at £4.82 a share for the half-year to end-December, missing a consensus of £5.06 according to Reuters estimates, and a company-compiled consensus of £4.96.

The half-year dividend rose 6 percent to £1.55.

Diageo, which also makes Baileys liqueur, Captain Morgan rum and Tanqueray gin, said underlying sales rose 4 percent in the half year and operating profits were 2 percent ahead. – Reuters

Source: http://www.iol.co.za/diageo-misses-targets-with-9-earnings-rise-1.1025400

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