Diageo cuts growth target as earnings rise

By David Jones

LONDON (Reuters) - Diageo (DGE.L), the No.1 alcoholic drinks group, met forecasts on Thursday with an 11 percent rise in annual earnings but cut its profit-growth target due to an economic slowdown and rising input costs.

The London-based maker of Johnnie Walker whisky, Smirnoff vodka and Guinness beer reported underlying earnings per share of 60.6 pence for the year to June 30, compared with a consensus of 60.3p and a range of 59.5 to 61p in a Reuters poll.

But the group, which also makes Captain Morgan rum, Baileys liqueur and Gordon's gin, said weakening economies in Europe prompted it to cut its target for operating profit growth for the year to June 2009 to 7 to 9 percent from 9 percent.

Finance Director Nick Rose said the main economic concerns centred on Europe rather than North America, and he forecast accelerating cost increases this year from the rising price of grains, glass, packaging and energy.

"Our view is robust around North America. Attention is switching to Britain and the rest of Europe, which is looking quite challenging," Rose said on a conference call.

Rose said Diageo faces tough trading in Spain, Britain and Ireland, which make up one-fifth of group profits, with the Spanish scotch whisky market in decline and the British and Irish on-trade beer market in bars and pubs suffering.

Diageo shares rose 0.4 percent to 983-1/2 by 3:20 p.m. in a London stock market up 1.2 percent. The stock saw a rally in August linked to the recovering dollar, as nearly 40 percent of Diageo's profit comes from the United States.

Analyst Matthew Webb at brokers Cazenove said the results and the cut in growth target were expected but he said he considered Diageo shares overvalued as they trade at a 10 percent premium to French arch rival Pernod Ricard (PERP.PA).