This morning, Diageo (NYSE: DEO), the world's largest spirits maker, announced that annual profit increased 7%. The company's net sales for the year increased 15% to 9.3 billion pounds thanks to solid performance in its international segments.
Diageo's sales increased during the past few quarters, thanks to investment in major brands like Johnny Walker, Guinness, and Smirnoff. This investment has helped the company weather the global economic downturn better than most of its major rivals.
Unfortunately, the company then looked ahead. Diageo's CEO Paul Walsh suggested that the coming year would remain "challenging" and that operating profit will grow in the low single digits. One of the reasons for the poor forecast is the fact that the economic downtrend has started a trend where consumers are purchasing cheaper alcohol.
Walsh also stated, "While the global economy appears to be stabilizing, there is still uncertainty as to the sustainability and pace of any recovery and fiscal 2010 will be challenging, as we lap a strong first quarter and reasonable first-half performance this year."
This forward-looking statement sent the shares nearly 4% lower in after-hours trading. That said, watch for the shares to lean on their 10-week moving average if needed. This trendline has provided support since the end of April, and may stand up to the test it will experience today. Nevertheless, the stock may be in for some resistance, as both the $65 level and the equity's 50-month moving average loom overhead. Both of these layers of potential resistance could quickly put an end to any potential rally.
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