Drinks company Diageo H1 profits down 10 pct

(AP) — Diageo PLC, the world's biggest spirits maker, on Thursday reported a 10 percent fall in first-half profit as the global recession and keen competition for some brands cut into sales.

For the six months ending Dec. 31, the maker of Johnnie Walker whisky, Smirnoff vodka and Guinness stout reported an after-tax profit of 1.02 billion ($1.6 billion), down from 1.13 billion a year earlier.

Sales fell 2 percent to 5.2 billion pounds.

"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. In addition we reduced stock levels in all regions," said Chief Executive Paul Walsh.

The company raised its interim dividend by 5 percent to 14.6 pence per share and reaffirmed its previous guidance of "low single-digit organic operating profit growth for the full year."

Diageo shares were down 1.6 percent at 1,009 pence in early trading on the London Stock Exchange.

In the first half, Diageo's operating profit before exceptional items was down nearly 1 percent at 1.63 billion pounds.

Simon Hales, analyst at Evolution Securities, said the company would need a 5 percent gain in second-half earnings before interest and taxes just to finish the year even with the previous year's result.

"This looks ambitious, given a continued weak consumer outlook in mature markets," Hales said.

Diageo said sales of its global priority brands fell 4 percent by volume, with J&B scotch down 12 percent, Jose Cuervo tequila down 11 percent and Baileys down 8 percent.

J&B was hurt mainly by falling Spanish sales, Diageo said. Jose Cuervo suffered from price-cutting by competitors in its main North American market, and Baileys was hit by consumers turning away from luxury drinks during a recession, the company said.

Johnnie Walker was the loan gainer among the global brands, with sales up 3 percent.

Diageo said sales by volume were down 4 percent in North America, 2 percent in Europe and 1 percent in Asia/Pacific. Other international sales were up 2 percent.

"Today's update has shown both the benefits and occasional disadvantages of geographical and product diversification, as it is often not possible to be firing on all cylinders simultaneously," said Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers, who credited Diageo with "moving in a positive direction."

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