Spirits maker Diageo Plc on Thursday forecast a much bigger than previously expected hit from foreign exchange movements this year after weeks of volatility on emerging markets driven by rising U.S. and European interest rates.
Diageo, the world's largest distributor of spirits with operations across 180 countries, said it expected currency effects to knock £175 million (€197 million) off-net sales, compared to a previous estimate of €79 million.
The maker of Guinness, Johnnie Walker Scotch, and Smirnoff vodka said that would also wipe £45 million (€50.7 million) off its full-year profits, up from a previous estimate of €11 million.
Foreign Exchange Volatility
"In recent weeks, we have experienced some increased emerging market foreign exchange volatility, which has been partially offset by a strengthening of the dollar," Chief Executive Ivan Menezes said in an update ahead of its 2018 meeting of shareholders.
"Based on current rates we currently expect exchange to have a negative impact on net sales of £175 million (€197 million) and a negative impact on operating profit of £45 million (€50.7 million) for the fiscal year," Menezes added.
In results in July, the company, which suffers when sterling rises because it reduces the value of its largely foreign sales, assumed average rates of the pound at $1.35, compared to $1.27 a year ago.
Sterling, hurt by worries over Brexit and the rise in U.S. interest rates, was trading around $1.3150 on Thursday.
The company also said it continued to expect operating margins growth of 175 basis points in the three years ending June 30, 2019.
Organic net sales growth in fiscal 2019 will be "broadly" in line with last fiscal year, Diageo said.