Half-year profits were 12.5 per cent lower at pounds 1.05bn, supported by double-digit profit growth in its main spirits markets of North America and Europe.
Smirnoff vodka and Johnnie Walker Black Label whisky did well in the US. But the UK proved a tough market with sales of Smirnoff, Bell's whisky and Gordon's gin down substantially in the period.
Diageo shares edged 2.5p lower to 719p although the City was encouraged that the cost savings from the pounds 24bn merger of Guinness and Grand Metropolitan in December 1997 are on target at pounds 61m.
Assessing the underlying performance of Diageo is as difficult now as it was under the old Grand Metropolitan accounting regime. This year the picture is clouded by a slew of exceptional items, dilutions from disposals, currency effects, the impact of last year's pounds 2.8bn share buy-back and the cost-saving effects.
Stripping all these out, operating profits limped ahead by 3 per cent to pounds 1.1bn. This might look unimpressive but is actually a reasonable achievement given market conditions in major parts of the Diageo empire.
In spirits, profits in the Far East fell from pounds 84m to pounds 56m, with volumes down 30 per cent. In the rest of the world category, which includes Latin America, organic profits fell by 25 per cent although Diageo brands outperformed the market.
Following the disposal of its 49 per cent interest in Cantrell & Cochrane other disposals are also planned by John McGrath, the chief executive. These will include 3 per cent of the spirits business which are considered non-core plus other parts of the Pillsbury food division.
In packaged foods, where profits fell by 3 per cent partly due to higher cream costs, the outlook is better in the second half. In spirits the horizon is also clearing as the company is now up against weak comparisons last year and markets appears to be bottoming out.
Burger King, long considered by the City as a disposal candidate, is still a core business, according to Diageo. "Quick Service restaurants", as the company now calls its Burger King division, is being helped by the launch of its "stealth fries" which have special crispy coatings. But operating profits there are flat and there is a worrying sales dip in the last two months that is being blamed on the weather. Analysts are concerned that lower advertising spend could have flattered the figures.
With hints of more share buy-backs investors should sit tight, analysts say. But on full- year forecasts of pounds 1.75bn the shares trade on a full forward rating of 21. After a strong run up from 480p in September, the shares are likely to tread water for now.