* Q1 underlying net sales growth dips 6 percent *Maintains year operating profit growth guidance
* Shares dip 4.7 percent to 931 pence (Adds further details, updates shares)
LONDON, Oct 14 (Reuters) - Diageo Plc (DGE.L), the world’s biggest spirits group, said on Wednesday its underlying sales fell a sharper-than-expected 6 percent in its first quarter, sending its shares lower, while it kept its annual profit target.
The British 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 percent fall in sales in a Reuters poll of six brokers.
“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,” said Chief Executive Paul Walsh in a trading update.
“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,” Walsh added.
The London-based group cut its annual target twice in six months earlier this year as de-stocking and downtrading to cheaper products in the downturn hurt the drinks maker.
Walsh added that stock levels had not risen in the first quarter and in its biggest market, North America, stocks for its U.S. spirits business were below those seen at end-June 2009.
“This is clearly a weak figure, but is heavily driven by the phasing of orders. Last year saw heavy buying by consumers ahead of Christmas before the crisis hit. This year customers are understandably being more cautious,” said analyst Matthew Webb at brokers Cazenove
He expects consumers to increase orders during key pre-Christmas trading, assuming demand stays resilient, and added on a positive note that the weak start was anticipated by the company and there was no change in its full-year guidance.
Diageo shares dipped 4.7 percent to an eight-week low of 930-1/2 pence, before last trading down 3.6 percent at 941-1/2p by 0930 GMT, making the Johnnie Walker whisky and Baileys liqueur group worth around 24 billion pounds ($38.34 billion).
Other European spirits group shares were lower with Pernod Ricard (PERP.PA) off 3.5 percent at 53.72 euros. It is due to report on recent trends on Oct 22.
Analysts had warned this quarter was set to be the low point for Diageo as the previous first-quarter of July-Sept 2008 saw sales rise 6 percent before the market saw a fall in November 2008 as the slowdown worsened after the collapse of Lehman Brothers.
In its last financial year to end-June 2009, the group saw flat underlying sales and operating profit growth of 4 percent, but has said it expected trading to stabilise in the last six months of 2009 and hoped for a real recovery in 2010 [ID:nLQ209171].
The group was giving a trading update ahead of its annual general meeting later this afternoon.
Diageo shares have underperformed the FTSE 100 .FSTE index by 12 percent and rival Pernod Ricard (PERP.PA) by 7 percent so far this year. (Reporting by David Jones; editing by Rupert Winchester)