Diageo leaves investors thirsty for more

It seems the suffering consumers of Greece, Ireland, Spain and Portugal can't even afford to drown their sorrows in the old style. The four economic laggards explained Diageo's 9% fall in first-half profits in Europe . In Greece, sales collapsed 38%. In Ireland three years ago, 70% of Diageo's booze was consumed in pubs and bars; now about two-thirds of its volume goes through the off-trade, where profit margins are slimmer. The Irish are drinking 8% less Guinness than a year ago and they are increasingly consuming it at home. Paul Walsh, chief executive, appeared surprised that anyone was surprised by these trends. He has a point. Diageo has been such a dependable performer for so many years that the City seemed to think it could defy any gale. It can't. Diageo's response is to trim its costs, which is logical. However, when copied by other consumer goods companies, this won't help the local economies. The squeeze on consumers in those countries looks as if it has a long way to run. The City was also caught on the hop on Wednesday by weaker-than-forecast sales at Reckitt Benckiser, the Cillit Bang folk. Two of the market's most reliable consumer goods companies, then, have disappointed in the space of two days. The problems (so far, at least) are entirely European, which is why Diageo's shares fell only 4.6% on Thursday . The group's sales in the US, where profit margins are fattest, were up 3% and Asia marches on. All the same, there is a reminder to investors that international branded consumer goods stocks may not be quite as defensive as thought.