Hurricanes could hit profits, Diageo warns

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The Independent Online

Diageo, the global spirits group, has warned that this autumn's hurricane devastation in the US could hit its full-year performance after the storms dented sales in the first six months. It also warned that growth in the first half of the year could be below guidance for the full year and that earnings per share will be affected by agreements with tax authorities.

The company's warning contributed to a fall in its share price, from 862p to 836p. The company also warned that in Europe it was seeing continued weakness in its pre-mixed spirits drinks as well as disappointing Guinness sales.

In a trading update to coincide with an investor conference, Nick Rose, the finance director, said: "The terrible hurricanes in the US have had an impact on our performance in the south-eastern states. It is too early to tell whether this will impact full-year performance or whether the impact will be limited to the first half and we will benefit in the second half from restocking." There was a further warning from Diageo on energy costs, which have risen on the back of higher oil prices, and a further £20m is expected to be added to its variable costs as a result.

Despite the impact of Hurricane Katrina and her sister storms, Mr Rose said the company would maintain its full-year guidance, and that organic operating profits growth "could be similar" to that achieved for the 12 months ended June 2005, even allowing for higher growth in marketing spend and increased pension costs.

The US is Diageo's most important market and is leading much of the company's growth as favourable demographics there, coupled with a growing, ethnic population that favours spirits-based drinks, generate strong sales growth.

The company said trading in Latin American was "buoyant" and that Taiwan, Korea and Nigeria were improving.