DIAGEO Plc, the world's largest liquor maker, had an 8.1-percent drop in fiscal second half profit on higher costs for barley and energy and said commodity expenses will increase further in the next year.
Net income for the six months ended June 30 fell to 546 million pounds (US$1 billion) from 594 million pounds a year earlier, according to full-year figures reported by London-based Diageo yesterday. Profit gained 8.9 percent in the first half.
The maker of Smirnoff vodka and Guinness stout said operating profit in fiscal 2009 will rise 7 percent to 9 percent, excluding acquisitions and currency movements, after 9-percent growth in the year ended June 30. Further price rises are planned to help offset increased costs for oil, packaging and grain. Diageo increased marketing spending 5 percent last year to keep sales growing amid lower consumer spending in Europe and the United States.
"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," Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, told Bloomberg News.
Diageo fell as much as 1.3 percent in London trading and was down 9 pence, or 0.9 percent, to 970.50 pence at 12:19pm London time. The shares have declined 10 percent in 2008 after five straight years of gains. Competitor Pernod Ricard SA has dropped 23 percent this year.
Sales rose 9.9 percent in the second half to 3.8 billion pounds. That was more than 7-percent growth in the first six months.
"We enter the new financial year facing slowing global GDP growth and more challenging global economic trends," Chief Executive Officer Paul Walsh said in the statement. Diageo still expects "double-digit" earnings-per-share growth, he said.
Rising fuel and food costs are sapping corporate profits and household incomes, putting a strain on global economies, while falling house prices are weighing on US consumer spending.
Input costs rose by 90 million pounds last year and will increase to 150 million pounds in fiscal 2009, the company said.