Shares in Diageo were down on the FTSE 100 in morning trading despite the brewer reporting a rise in net sales and operating profit in the half year ended 31 December 2010.
Net sales increased three per cent from the same period the previous year by two per cent to £5.3 billion, while operating profit rose 12 per cent to £1.7 billion.
Diageo said it would be raising its interim dividend by six per cent to 15.5 pence per share.
The group saw a strong performance in Asia Pacific, where net sales rose seven per cent and operating profit increased 18 per cent. In North America net sales were up three per cent and operating profit increased five per cent.
In Europe however net sales declined three per cent and operating profit dropped nine per cent. In other International markets net sales rose 13 per cent and operating profit climbed 15 per cent.
Paul Walsh, Chief Executive of Diageo, said, "Momentum is building in our business. Our top line performance was stronger and price/mix improved. We have increased marketing spend significantly, up 10%, but in a very focused way. 35% of the increase was behind strategic brands in US spirits to build the brand equity as we move away from promotional support and over 60% of the increase was on our brands in the faster growing emerging markets. Despite the economic weakness in much of Europe, our first half performance gives me increased confidence that we will improve on the organic operating profit growth we delivered in fiscal 2010".
Richard Hunter, Head of UK Equities at Hargreaves Lansdown Stockbrokers, commented, "The initial share price weakness belies a progressively strong underlying story.
"Whilst demand in Europe remains relatively weak, Diageo has continued to benefit from its geographical diversification. Contribution from the Asian region in particular underwrote a strong growth in earnings, a figure which was also helped along by the performance of the North American, Latin American and African areas. The group expects profits to exceed those of 2010, beneath which margins are also improving. The dividend policy remains progressive, underpinned by a significant amount of free cash flow.
"In all, Diageo may have narrowly missed estimates but prospects remain positive in what is a globally difficult environment. There may also be an element of profit taking weighing on the shares, following a 24% hike in the price over the last year, as compared to a gain of 18% for the wider FTSE100 in that period. The general market view of the shares as a buy is unlikely to be challenged."
By 09:05 shares in Diageo were down 4.15 per cent on the FTSE 100 to 1,201.00 pence per share.