Diageo lifts spirits with profits rise

Guinness drinks giant Diageo today reported better-than-expected profits after strong sales of spirits in the United States.

Diageo, the world’s biggest alcoholic drinks maker, said operating profits rose 7% in the six months to New Year’s Eve to £1.26bn (€1.8bn).

It came on the back of a 5% increase in sales around the world, driven by Smirnoff vodka, Johnnie Walker whisky, Captain Morgan rum and Jose Cuervo tequila.

The United States was the best performing market with like-for-like sales up 7% and operating profits ahead 5%.

This compared with flat like-for-like sales in Europe where Smirnoff vodka performed well but the demand for ready-mixed Smirnoff drinks continued to cause a headache, with revenues down 23%.

Guinness sales across Europe were down 2% – including a 2% fall in Ireland and 3% fall in the UK – due to a weaker beer market and a particularly hot summer.

But operating profits were up 7% in Europe thanks to an ongoing cost efficiency programme.

Europe was still Diageo’s biggest market with sales of £2.22bn (€3.2bn). In the US sales reached £1.57bn (€2.3bn) and internationally £1.53bn (€2.2bn).

Diageo chief executive Paul Walsh said it was a “strong first half performance” by the group.

“We continue to capitalise on our opportunities in the US,” he said. “In Europe, where we face a more challenging trading environment, we have created a more efficient organisation and this has enabled us to deliver profit growth in the period.”

The operating profits of £1.26bn (€1.8bn) came in ahead of the £1.24bn (€1.8bn) expected in the City by Morgan Stanley.

The results came after Diageo warned that the devastating hurricanes that battered the US in the summer had hurt its performance, with business lost in the south-eastern states following Katrina, Wilma and Rita.

Today, Mr Walsh said Diageo was on course to deliver full year profits in line with expectations.

“Material changes to these first half trends are unlikely in the balance of the year and we are therefore comfortable in reiterating full year guidance of 7% organic operating growth,” he said.

Shares in the company opened 2% higher today.