Diageo profits on Asian, Russian taste for spirits

LONDON (AP) - Diageo, the world's largest spirits maker, said Thursday its six-month net profit rose by 17.5 percent thanks to strong sales growth in Asia, Russia and other emerging markets.

For the half-year ended Dec. 31, the maker of Johnnie Walker whisky, Smirnoff vodka and Guinness stout reported a net profit of 1.19 billion pounds ($1.9 billion) compared with 1.02 billion pounds a year earlier.

Net sales of 5.3 billion pounds, though up 2 percent, fell short of the consensus forecast because of a poor first half in Europe.

Sales by volume were up 2 percent in North America but down 2 percent in Europe. The Asia/Pacific region saw volume rise 8 percent while other international markets produced a 9 percent gain.

Diageo shares were down 3 percent at 1,215 pence in morning trading on the London Stock Exchange.

"The initial share price weakness belies a progressively strong underlying story," said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers.

"Whilst demand in Europe remains relatively weak, Diageo has continued to benefit from its geographical diversification."

Analysts at Investec Securities called Diageo's report "a poor result with further hangover to come," including the impact of foreign exchange movements.

"Operating profit growth at constant foreign exchange was 2 percent against market consensus of 6.5 percent," Investec said.

Diageo's Johnnie Walker was the key driver of its performance in Asia, although net sales in Australia fell because of price competition. Scotch sales also keyed growth in Latin America and South Africa, while beer was the driver in east Africa, Nigeria and Cameroon.

In Europe, the company blamed debt crises in Greece, Spain, Portugal and Ireland for a 13 percent net sales decline in those markets. Sales in Russia and eastern Europe were a bright spot, with a 20 percent gain.

CEO Paul Walsh said the company had beefed up its marketing spending, including a 35 percent boost for promoting key spirits brands in the United and a more than 60 percent increase in the faster growing emergency markets.

"Despite the economic weakness in much of Europe, our first half performance gives me increased confidence that we will improve on the organic operating profit growth we delivered in fiscal 2010," Walsh said.