Experts warn for tough year for drinks giant Diageo


By Oliver Farrimond

CITY experts have warned that Scots drink giant Diageo could be “walking through treacle” over the next year.

Analysts have warned that mounting unemployment figures could lead to a dramatic drop in bar sales of the group’s flagship products.

Diageo, the makers of Smirnoff and Guinness, are planning to raise the prices of their American products to counteract the bleak forecast.

Analysts at financial advisory group Collins Stewart said: “A resurgence in Diageo profit growth is dependent upon a healthier on-trade in markets where unemployment remains stubbornly high.”

Experts at investment bank JP Morgan Cazenove added that question marks over future interest rates and taxation levels meant that it was difficult to predict a sunny outlook for the drinks manufacturer.

A spokesman for the group said: “We think it unlikely that Diageo will be comfortable guiding above mid-single digit organic earnings before interest and taxation growth.

“We suspect that it might it face guide to ‘low to mid-single digit’ growth given the lack of visibility at this stage of the year.”

However Carl Short, drinks analyst at Standard and Poor’s Equity Research, said that healthy sales of Diageo drinks in Latin America and other foreign markets could help boost the company’s performance.

He said: “The immediate concern is Western Europe but there is also a worry that North America is not recovering as fast as was hoped four or five months ago.

“Will there be a double-dip recession and what could the effect on food and drinks consumers be?

“In both the US and Europe, it could be years before consumers in these regions feel comfortable.”

Diageo are expected to post boosted pre-tax profits of £2.34 billion, up from £2.02 billion last year.

The news follows a difficult year for the drinks group, who announced the closure of several of their Scottish sites – including a bottling plant in Kilmarnock and a distillery at Port Dundas in Glasgow – at the cost of almost 1,000 jobs.