4 Min Read
* Operating profit up 8 pct to 3.5 bln stg, as expected
* Organic net sales up 5 pct vs forecast 4.8 pct
* U.S. growth offsets slowdown in some emerging markets
* New CEO sticks with medium-term growth targets
By Kate Holton
LONDON, July 31 (Reuters) - Demand from U.S. drinkers for expensive whiskies and new spirits is helping Diageo to offset slowing growth in some emerging markets, the world's biggest spirits maker said on Wednesday, echoing a trend seen elsewhere in the luxury sector.
In its first set of results under new boss Ivan Menezes, the maker of Johnnie Walker whisky and Guinness stout met forecasts with an 8 percent rise in annual operating profit and stuck to its medium-term growth targets.
Faced with sluggish demand in recession-hit Europe, Diageo - like many of its consumer goods peers - has been expanding in emerging markets, where it aims to make around half of its turnover by 2015, compared with 42 percent now.
But the move has not been without its problems, with slowing economic growth and changes to certain laws including taxes dampening demand in some of these markets. Rival Remy Cointreau recently warned of tougher trading in China.
However, a growing number of companies report a recovering U.S. economy is taking up the slack. German fashion house Hugo Boss, for example, noted strong U.S. demand on Wednesday, echoing luxury peers LVMH and Kering.
Diageo said U.S. demand for premium whiskies and new products like Crown Royal Maple helped to make up for slower sales growth in some emerging markets such as China, Brazil, Nigeria and South Korea in the year ended June.
Group organic net sales, which strips out currency moves, acquisitions and excise duties, rose 5 percent, slightly above analysts' average forecast of 4.8 percent.
That included a 5 percent increase in North America, which outstripped a 3 percent rise in the Asia-Pacific and a 4 percent decline in western Europe, although still lagged growth in regions such as Africa, Eastern Europe and Latin America.
Operating profit was up 8 percent to 3.5 billion pounds ($5.3 billion), in line with analysts' average forecast, and the company raised its full-year dividend by 9 percent to 47.4 pence a share.
"A reassuring set of numbers and forecasts look well underpinned," Credit Suisse analysts said.
Diageo shares, up 6 percent so far this month, were 0.6 percent higher at 2,002.5 pence by 0855 GMT.
The company said it had suffered some weakness in Brazil due to changes to drink driving laws, social programmes and tax laws which had resulted in some destocking amongst distributors.
China has also been hit by a general slowdown in the country's economy relative to recent years and a crackdown on extravagant consumption and the giving of gifts for favours due to fears it can feed corrupt habits.
Diageo's Finance Director Deidre Mahlan said that while premium drinks had been affected in China by the crackdown, the ultra premium or super deluxe range was still performing well.
"Even (despite the words of caution), the generation of cash has enabled Diageo to maintain its progressive dividend policy, whilst its sheer scale and geographical diversification bode well for further expansion," said Richard Hunter, head of equities at Hargreaves Lansdown.
Diageo reiterated its medium-term sales target for 6 percent growth on a compound basis.