Diageo says Europe is weak

DIAGEO, the world’s biggest spirits group, said trading in Europe was weaker as it met forecasts with a five per cent rise in first-quarter underlying sales driven by growth in emerging markets.

The maker of Smirnoff vodka, Captain Morgan rum and Guinness also stuck to its forecast to see higher profit growth this year than last as Russia, Latin America, Africa and Asia help offset difficult conditions in Europe.

Chief executive Paul Walsh said the group faced tough trading in Greece, and Spanish net sales were down markedly year-on-year, reflecting the debt crisis crippling these southern European economies.

“The consumer environment in Europe is slightly weaker than we expected in the prior year,” Walsh said in a trading update for its July-September first quarter and ahead of its annual general meeting. The European region produces nearly a third of the group's profit.

Spain is one of Diageo’s three key markets in Europe along with Britain and Ireland, which together make up over half of the group's European sales.

The group reported a strong performance from operations in Latin America, Africa and Asia Pacific, while North America posted stronger growth than in the previous year.
“The company is seeing a slightly improved growth trend in the US market which in very encouraging... However the European consumer environment has deteriorated versus last year driven by weakness in Greece and Spain,” said analyst Anthony Bucalo at brokers Credit Suisse.