Diageo confident on profits despite sales dip

The drinks group Diageo yesterday warned that demand for its eight leading brands including J&B whisky and Baileys had slowed in the second half of its financial year, sending its shares down 4 per cent.

Shares in Diageo, which also owns brands including Guinness beer and Smirnoff vodka, dropped 31p to 777p – making the stock the second biggest faller in the FTSE 100 index.

The company said that volume growth of its eight key global brands – Johnnie Walker, Guinness, Smirnoff, J&B, Baileys, Cuervo, Tanqueray and Captain Morgan – had slowed in the second half to 30 June from the 9 per cent rise seen in the first half of the year.

"In line with previous estimates, volume growth in J&B, which had seen buying-in in Spain in the first half ahead of a price increase, slowed in the second half, as did the volume growth in Baileys," the company said.

It also said that volume performance in its key markets in the second half of the year had been hit by the worsening economic and political situation in Latin America.

Nevertheless, Diageo said overall volume growth of the eight brands, excluding its so-called "ready to drink" products, had improved year on year.

The company, which made the comments in a year-end trading update, said its financial results would continue to show "profitable top line growth".

Diageo's chief executive, Paul Walsh, said: "For the third consecutive year, Diageo has achieved strong top line growth in premium drinks."

Growth in Diageo's ready to drink products category was led by the vodka drink Smirnoff Ice, with volume doubling in the year while other products performed "well" even though the marketplace was more competitive.

But while the company said sales of the rum-based Captain Morgan Gold drink had been good since its May launch, it noted that volumes had so far been beneath expectations. Trading in the second half also benefited from the addition of the Seagram business, bought last December, after the performance of those brands met expectations.

"In the year to come we will maintain our consistent approach to continue to generate growth. Our performance will benefit significantly from our newly acquired brands, particularly Captain Morgan, Crown Royal, Windsor and Cacique," Mr Walsh said.

Diageo also said the planned disposal of its Burger King chain, which was put up for sale in March, was still on track and that the fast-food restaurants arm continued to show "good signs" of improvement in the second half of the year.

The company, which plans to release its year ended 30 June results on 5 September, said the performance of its four main markets – North America, Great Britain, Ireland and Spain – had been "in line with expectations" in the second half of the year.