The Week Ahead: Diageo to offer little cheer after weak sales

Analysts have voiced fears about further revenue slides at Diageo, which owns brands from Guinness to Baileys, when the world's largest drinks company reports first-half results on Thursday.

Last week it emerged that the Swiss authorities had offered a deal for the company to move its headquarters to the city of Zug, including a personal tax exemption for up to 200 staff, and a corporate tax rate for the company of less than 10 per cent, but the group is understood not to have accepted it.

Analysts at UBS predict that Diageo's sales in Europe will continue to be weak, with "destocking to continue to drag on performance in the US in the period". Despite this Melissa Earlam, drinks analyst at UBS, still rates the stock as a "buy".

ING has voiced concerns about Diageo's operations in Europe, with beer in the UK and Ireland showing "share gains but in declining markets". However, they also point out that "currencies have been positive with a stronger euro versus the pound, and cost savings have been important to compensate for organic sales weakness".

The broker believes that Africa may disappoint. Nonetheless, Diageo will likely maintain guidance for full-year 2010 of low single-digit organic earnings before interest and taxation growth.

Results/updates: Kofax, Amino Technologies, ST Modwen Properties.



Tomorrow: British Land is due to issue third-quarter results. It follows Friday's news that the Australian bank Macquarie has agreed to let almost a third of British Land's 595,000 sq ft offices at Ropemaker Place, near Liverpool Street in London. The building is now 80 per cent let. But JP Morgan has warned that British Land's fortunes have "gradually changed for the worst" over the past 10 months, with investor criticism mounting. Analysts say the unrest is due to "the 50 per cent Broadgate sale, the departure of retail head Andrew Jones, including two colleagues, and a strategy that lacks details".

Results/updates: British Land, Wolfson Microelectronics, Alphameric, Beazley.



WEDNESDAY: UBS expects a "solid finish" to the year for consumer goods group Reckitt Benckiser when it issues full-year results, with "organic top-line growth of 7 per cent and operating margin expansion of 50 basis points". ING says the swine flu scare has helped the group's Dettol and Lysol franchise, but warns that rival Proctor & Gamble remains a "formidable competitor", especially in fabric care and air freshener products. ING expects that Reckitt "could face a tough 2010 with a further slowdown in its core range".

The mining major BHP Billiton is due to issue interim results, and analysts at ING expect to see updates on acquisitions: "Though we don't believe BHP Billiton is likely to make a bid for a large acquisition, such as Potash Corp, we do not rule out further junior miner acquisitions to supplement their existing portfolio." They anticipate a decline in like-for-like sales of 22 per cent, to $23bn.

Results/updates: Telecity Group, Reckitt Benckiser, Pan African Resources, CSR, Hargreaves Lansdown, Morse, BHP Billiton.



THURSDAY: The medical devices outfit Smith & Nephew is expected to report a sales increase of 9.1 per cent when it issues its full-year results. Watchers at Deutsche Bank believe the company will report a positive outlook for 2010 with accelerating sales growth. The analysts say S&N will benefit from "normalising joint replacement demand in the US, [and] a turnaround of its trauma and European orthopaedic business".

UBS expects investors to "focus on the impact of the civil aerospace slowdown on Rolls-Royce's after-market business when the company issues its full-year results. But they warn that Rolls "may guide to a cash outflow for 2010 when it reports its results and this might not be taken well by investors". They also believe questions will be raised about the defence business, especially the impact from Airbus's troubled military transport aircraft A400M project, which employs 100 Rolls-Royce workers.

UBS has revised up estimates for the miner Rio Tinto after strong production figures from the company. Ahead of its preliminary full-year results, ING says that "investors will be looking for further evidence of the rehabilitation of Rio Tinto's finances, new capital expenditure updates and news as to when the company's dividend will be reinstated".

Results/updates: Smith & Nephew, BT, Rolls-Royce Group, Rio Tinto, Diageo.



FRIDAY: Results/updates: Petropavlovsk.

Diary: Economics

Today: Unemployment rate (EU; Retail sales (Germany).



Tomorrow: UK balance of trade; British Retail Consortium sales monitor; Consumer price index (Germany); Leading indicator index (Japan); Wholesale inventories (US).



Wednesday: Bank of England inflation report; Corporate goods price index (Japan); New home sales (Australia).



Thursday: ECB Report (EU); Retail sales (US); Unemployment (Australia).



Friday: Consumer confidence (Japan); Gross domestic product (Germany)

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