Diageo on Tuesday reiterated guidance for the year to the end of June but the drinks group said the first-half performance could be lower than expected following the effects of the hurricanes in the US and rising costs.

The cautionary tone brought the share price down almost 3.6 per cent to 831½ p by mid-morning in London trading.

Organic operating profit growth for the year is seen as similar to that for the 7 per cent achieved in the year to June 2005. Earnings per share will be determined by forthcoming talks with tax authorities.

Nick Drake, chief finance officer, told an investor conference on Tuesday that while it is on target to meet savings targets, higher oil prices will increase the cost base by some £20m.

In the US, first-half performance will be hit by fallout from the hurricane season but Diageo said it was too early to tell whether there would be a spillover into the second half. Nonetheless, the group said it was gaining market share in the US.

In Europe, measures are in place to remedy weakness in the “ready-to-drink” market and falls in Guinness sales but results are unlikely to flow through until the second half.

Latin American business remains buoyant, the company said. In three targeted markets - Taiwan, South Korea and Nigeria - there has been “steady progress”.

The group reports first-half profits in mid-February. In September it reported full-year profits of some £1.38bn, slightly down on the previous year,

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