Diageo raises full-year earnings 13 pct, ups target

(Rewrites with finance director interview, analyst, shares)

By David Jones

LONDON, Aug 30 (Reuters) - The world's biggest alcoholic drinks group, Diageo Plc (DGE.L), matched forecasts with a 13 percent rise in annual earnings on Thursday and raised its target for future profit growth.

The London-based maker of Johnnie Walker whisky, Smirnoff vodka and Guinness beer said it saw no signs of a North American slowdown and growth returning to Europe, while emerging markets such as Russia, China and Latin America grew strongly.

Chief Executive Paul Walsh said the strong results prompted him to raise his underlying operating profit growth target to 9 percent in the current year, after beating an 8 percent target in the year to June 2007 with a 9 percent increase.

"Therefore, we currently expect increased organic operating profits growth in 2008 of 9 percent," Walsh added.

The group, which also makes Captain Morgan rum, Baileys liqueur and Jose Cuervo tequila, reported earnings per share of 55.4 pence for the year to June 30, in line with the average forecast of 55.5p in a Reuters poll of 12 analysts whose forecasts ranged from 54.6p to 56.6p.

"We feel robust about North America right now, while there is great momentum in the business with the second half better than the first," Finance Director Nick Rose told Reuters.

Describing the results as the best in Diageo's 10-year history as they showed broadly-based growth, he added that sales and profits accelerated in the second half to show 9 and 10 percent rises, ahead of the 7 and 9 percent annual increases.

WELCOME SURPRISE

Diageo shares rose 0.6 percent to 10.23 pounds by 0735 GMT, reflecting the increase in the profit target, although some analysts tempered the optimism by pointing out a bigger hit than expected from the weaker dollar for the current year.

"The increase in the profit target was a welcome surprise and shows Diageo is really motoring," said one analyst.

However, the Tanqueray and Gordon's gin group increased to 65 million pounds the damage it expected to operating profit from currency movements for the current year, after saying in June currency would slice 40 million off operating profit. Rose said scotch sales grew 13 percent, led by Johnnie Walker, while Guinness returned to growth with annual volumes up 2 percent, driven by Africa as Nigeria pushed Ireland aside to be the beer's second biggest market after Britain.

The group, which raised its full year dividend 5 percent to 32.7 pence, reiterated it will also return 1 billion pounds to shareholders via a share buyback programme in the current year.

Diageo shares trade on 16.7 times forecast June 2008 earnings, according to Reuters data, a discount to rival Pernod Ricard (PERP.PA) on 17.2 times as the French group's underlying sales grew faster at 9.1 percent in the year to June 2007 and earnings are set to grow above 20 percent.

Although Diageo produces consistent growth, many investors prefer Pernod due to its faster top-line sale outlook since it took over Allied Domecq in 2005 and the Paris group's greater scope to improve margins and to take part in industry takeovers.

((Editing by David Holmes and Will Waterman; Reuters Messaging: david.jones.reuters.com@reuters.net; +44 20 7542 7972))

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