Diageo to report slight dip in profit

GUINNESS maker and world’s biggest alcoholic drinks group Diageo Plc will report slightly lower annual profits next week. But the company is gearing up for 2006 growth led by price rises and cost cutting, analysts said on Friday.

The British firm, which makes Smirnoff vodka and Baileys’ Irish Cream, will suffer lower profits due to the sale of a stake in US food group General Mills and a weaker dollar, but should hit underlying growth targets.

Last month, the company warned of slower sales growth in the first six months of 2005, with worsening trading in Europe and declining sales of products like Smirnoff Ice in the US.

But analysts said the group should meet its annual 6% underlying operating profit growth goal for its financial year to June 30 with other territories making up for the declines. Diageo should see annual volumes up 2% to 3% and sales around 4% ahead.

Europe, which accounts for a third of group profits, has not been a good performer. North America, which accounts for 40% of earnings, should show good growth, while the outlook in the US market remains good for price rises and volume growth.

Annual pretax profit will dip around 4% after Diageo sold a 14% stake in General Mills last summer. Diageo this week agreed to sell its remaining stake of 7% for $1.15 billion.

Exchange rates will hit pretax pre-exceptional profits by £80 million in 2004/2005, but in 2005/2006 the hit is estimated at £50m.