Diageo earnings fall on emerging market weakness

Diageo, the world's largest distilled drinks maker by sales, posted weaker-than-expected earnings on Thursday, hurt by a slowdown in China and volatility in other emerging markets.

Over the last year, the maker of Johnnie Walker Scotch whisky, Smirnoff vodka and Guinness stout has grappled with a host of issues in emerging markets - including currency devaluations, a tax increase on one of its beers in Kenya and a steep decline in sales of Chinese baiju spirit, due to government-enforced austerity measures.

That decline led the company to take a writedown on the value of its business, worth about 79 million pounds on a net basis.

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Diageo reported earnings of 95.5 pence per share before exceptional items for the full year ended June 30, down from 103.1p a year before and below analysts' forecasts around 97.7p.

Net sales fell 9 percent to 10.3 billion pounds ($17.4 billion), while the average forecast was 10.5 billion, according to Thomson Reuters data.

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Diageo did not provide a forecast for the current year, but Chief Financial Officer Dierdre Mahlan told reporters trading in North America and western Europe should continue in a similar trend as recently, though emerging markets should improve, probably in the back-half of the year.

"While we expect those to improve, the top line performance will be dependent, to some degree, on how quickly those economies come back," Mahlan said.

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Sales volume, which measures the amount of drinks sold, fell 5 percent in Diageo's Asia Pacific and Africa, eastern Europe and Turkey divisions and 1 percent in North America and Latin America. Western Europe was flat.

Weak spots include China and southeast Asia, where volume fell 20 and 25 percent respectively, and Venezuela, where a currency devaluation and inflation cut Scotch sales 47 percent.