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Dismal sales at Diageo as crunch hits

City A.M. Reporter
Diageo, the world&rsquo;s biggest spirits group, said yesterday its underlying sales fell a sharper-than-expected six per cent in its first quarter, sending its shares lower, while it kept its annual profit target.<br /><br />The maker of Smirnoff vodka, Captain Morgan rum and Guinness beer reported the sales decline for its July-September first quarter, compared to analyst forecasts for an average 2.3 per cent fall in sales.<br /><br />&ldquo;As we anticipated consumer trends across our markets remain broadly unchanged since the year-end. Therefore net sales in the first quarter of the new financial year have been weak when compared to the strong performance of the first quarter last year,&rdquo; said chief executive Paul Walsh in a trading update.<br /><br />&ldquo;The year has started as we thought it would and we reiterate our guidance for low single digit organic growth in operating profit in fiscal 2010,&rdquo; Walsh added.<br /><br />The London-based group cut its annual target twice in six months earlier this year as de-stocking and down trading to cheaper products in the downturn hurt the drinks maker.<br /><br />Walsh added that stock levels had not risen in the first quarter and in its biggest market, North America, stocks for its US spirits business were below those seen at end-June 2009.<br /><br />Analysts had warned this quarter was set to be the low point for Diageo as the previous first-quarter of July-September 2008 saw sales rise 6 per cent before the market saw a fall in November 2008 as the slowdown worsened after the collapse of Lehman Brothers.<br /><br />In its last financial year to end-June 2009, the group saw flat underlying sales and operating profit growth of 4 per cent, but has said it expected trading to stabilise in the last six months of 2009.<br />