Beverage giant Diageo plc (LON:DGE) expects foreign exchange headwinds to have a bigger impact than previously estimated on sales and profits in the current financial year.
In a brief trading statement on Thursday ahead of its annual general meeting, the company said it predicts a hit of £175mln to net sales and £45mln to operating profit, compared to its July guidance of £70mln and £10mln respectively.
READ: Diageo shares lose their fizz after champagne business disappoints
"In recent weeks, we have experienced some increased emerging market foreign exchange volatility, which has been partially offset by a strengthening of the dollar," said chief executive Ivan Menezes.
Guidance for overall performance unchanged
The group, whose brands include Captain Morgan rum, Smirnoff vodka and Baileys, still expects organic net sales growth in fiscal year 2019 to be broadly in line with last year and “consistent with our medium-term guidance of mid-single digit growth”.
It continues to see organic operating margins rising in line with its guidance of 175 basis points in the three years ending 30 June 2019.
"The year has started well and performance is in line with our expectations,” Menezes said.
He added: “We are focused on delivering both growth and efficiency, allowing us to continue to reinvest in the business to support the long-term growth of our brands.”
Menezes has been expanding the business with the acquisition of Vermouth brand Belsazar in March and a £150mln investment in the Scotch whiskey industry in April.
Calm market reaction
Shares in the company edged down 0.3% to 2,603p in morning trading.
Ian Forrest, investment research analyst at The Share Centre, said the calm market reaction to the update shows that investors are focusing more on the fact that the overall performance remains in line with expectations.
"The market will also be conscious that there are other positives such as the £2bn share buyback scheme which began in August," he said.
“We continue to recommend the shares as a 'buy' for investors seeking a lower risk portfolio with a balance of growth and income due to the strength of its brands, excellent long-term prospects in major emerging markets such as China and India, and the good long term track record of dividend increases.”