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Diageo Sees Sales Rise, but Holds Profit Target

Reuters
Thursday, 28 Jun 2007 | 4:40 AM ET

Diageo, the world's biggest alcoholic drinks group, said sales growth improved in Europe and Asia-Pacific, but held its annual operating profit growth target at 8% due to higher marketing costs.

The British maker of Smirnoff vodka, Johnnie Walker whisky and Guinness beer said on Thursday the uptick in sales growth in early 2007 would see the group's underlying sales for its full year to end-June rise higher than the 6% increase in the first half.

Analysts said there would be little need to change forecasts, since the company made no change in its profit outlook in the trading statement near its financial year end of June 30.

Its shares were down 1.3% in a slightly firmer London market.

"While Diageo's total organic net sales growth in the full year is expected to be higher than in the first half, operating profit growth will be in line with the first half performance of 8%," Chief Executive Paul Walsh said in the statement.

The group said it expects exchange rates, mainly the weaker dollar, will trim 90 million pounds off operating profits in the current year, and slice 40 million pounds off operating profits in its next year to end-June 2008.

Cazenove said the statement was in line with expectations with no change to guidance on profits growth and exchange rate effects, but the group had seen an encouraging increase in its top-line sales growth.

The broker left its earnings per share forecasts unchanged at 55.7p for the year to June 2007 and at 61.4p for the year to June 2008.

The group, which also makes Captain Morgan rum, Baileys liqueur and Jose Cuervo tequila, said it continue to outperform its markets in North America, and saw more than 10% sales growth in Asia-Pacific and in its International region -- covering Latin America, Africa and the Middle East.

Diageo also reiterated that it has returned 1.4 billion pounds ($2.79 billion) to shareholders via a share buyback program in the year to end-June 2007.

It expects to publish its full-year results on Aug. 30.

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