Diageo full-year profits up, but outlook weaker

The maker of Johnnie Walker whisky, Guinness stout and Smirnoff vodka earned 1.52 billion pounds ($2.8 billion) for the year ending June 30, up 2.7 percent from 1.48 billion pounds a year ago.

Revenue rose 8 percent to 8.09 billion pounds ($14.9 billion) from 7.48 billion pounds, underpinned by sales of scotch in Latin America, beer in Africa and premium brands in North America.

The earnings met Diageo's predictions of a 9 percent rise in operating profit and a 7 percent lift in sales, assuaging fears by some analysts that the company would not meet its targets amid the rising cost of raw materials like grain, energy, glass and packaging and an anticipated downturn in demand due to the global economic slowdown.

The London-based company also remained relatively upbeat about the coming year, despite lowering its forecast for operating profit in the current financial year to a rise of 7-9 percent.

"You can't be certain, but you can be confident," Diageo Chief Executive Paul Walsh said of the company's forecasts given the prevailing economic climate, adding that its brands--which also include Captain Morgan rum, Baileys liqueur and Gordon's gin--had strong sales momentum to push through any accelerated slowdown.

"The other thing I would say about our brands is that they have faced world wars, they have faced revolutions, they have faced more economic cycles than we will see and they are today faster, more profitable and appealing to more customers than ever before," Walsh added.

The company's shares closed up 2 percent at 1,000 pence ($18.27), after initially dipping lower on the London Stock Exchange.

"Inevitably, the company's outlook for 2009 is rather less bullish, and the ongoing rise in commodity costs could yet erode some of its operating margins," said Hargreaves Lansdown analyst Richard Hunter. "Nonetheless, the company is well positioned to withstand slowing economic growth."

Diageo's vast geographical spread has helped insulate it from the general economic downturn, particularly its inroads into emerging markets in Asia and Latin America where demand for its premium drinks like single malt whiskies is booming.