Sector Snap: Liquor producers mixed

The analysts cut their ratings on both companies to "Neutral" from "Buy" and lowered price targets on the stocks.

In a note to investors, analyst Melissa Earlam said Diageo--the maker of Guinness stout, Johnnie Walker whiskey and Smirnoff vodka--may have a difficult time growing its profit in 2009 given a weaker U.S. consumer, a challenging environment in Europe and higher raw material costs.

Earlam said food and fuel inflation appears to be affecting emerging market spirits consumption and higher oil prices have boosted the cost of glass.

Earlam chopped her price target to $79.73 from $103.65.

She said she does not see any near-term catalyst ahead that could boost her rating.

"We believe that consumer goods companies are currently perceived by the market as being guilty until proven innocent in terms of their operational outlook," she said. "Between today and the results at the end of August we believe Diageo's share price will be buffeted by building concerns about the health of the global consumer."

The company reports its fourth-quarter and 2008 results on Aug. 28.

Analyst Kaumil S. Gajrawala said Brown-Forman, which makes Jack Daniel's Tennessee Whiskey brands and Finlandia vodka, is also likely to be affected by slower spending and higher commodity costs.

Even though Brown-Forman reported positive sales trends for its super-premium sprits in its last quarter, Gajrawala said in an analyst note that "we believe macroeconomic issues in the U.S. and Western Europe could limit near-term upside in Brown-Forman shares."