By Barbara Kollmeyer

MADRID (Dow Jones) -- Shares of Diageo PLC fell as much as 7% Thursday, retreating after the world's biggest spirits maker cut its annual profit forecast as business sustained a hard hit late last year from the global slowdown and as management predicted a downshift for consumer spending.

The company (DEO), whose well-known brands range from Smirnoff vodka and Johnnie Walker whiskey to Captain Morgan rum and Guinness beer, said net profit rose 16% to 1.14 billion pounds ($1.63 billion) from 975 million pounds in the six months ended Dec. 31, helped by exchange-rate movements.

But that number fell short of the consensus view of 1.65 billion pounds expected by 10 analysts who were surveyed by Dow Jones.

Net sales over the six months totaled 5.07 billion pounds, an increase of 18% from 4.29 billion pounds a year ago, which was within expectations.

Investors were taken aback as London-based Diageo cut its growth forecast for full-year operating profit to a range of 4% to 6%, down from a prior range of 7% to 9%.

Paul Walsh, the company's chief executive, said that the global slowdown hit the company particularly hard in November and December.

"Current economic trends indicate that consumer confidence will reduce further and the outlook for the second half is more difficult to predict," he said.

Shares of Diageo traded down 5% to 8.61 pounds in London, and over the past 12 months have fallen 18%. U.S.-listed shares fell on a similar scale in early New York action.

Diageo also said that it won't reopen its share-buyback program in the coming year and that it would introduce a restructuring program in the second half. The program's expected to save the company 100 million pounds, largely accrued in fiscal 2010.

As a result, the company will take an exceptional charge of 200 million pounds in the second half. However, Diageo said continued positive currency translations and a lower tax rate will mean double-digit growth in reported earnings per share after the exceptional item.

Surprisingly quick deterioration

Nico Lambrechts, research analyst with Merrill Lynch, said the slashed profit forecasts for Diageo come as an even bigger disappointment.

Management "remained fairly confident in their communications to the market as late as December last year," he said, adding that markets won't like that it cited a big hit on its business in November and December.

A cut in advertising and promotional spending as well as falling volumes in Europe and in the international division will also be viewed negatively by the market, the analyst said. Merrill maintains a neutral rating on Diageo.

However, Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers, said the market's reaction is judging potential rather than actual performance. He noted shares are down just over 9% in the last six months, not nearly as bad as the drop of 23% for London's benchmark FTSE 100 index .

"The first-half performance exceeded most analysts' expectations, with a particular benefit coming from the weakness of the pound against the dollar," said Hunter. "Even so, the actual volume of growth in the key U.S. market for Diageo has slowed markedly.

"Furthermore, the management has decided to downgrade the outlook for the operating profit on a particularly difficult market to call, and has clearly gone for safety in market expectations rather than aggressive growth."

He said that the growth downgrade will weigh on share performance over the shorter term but that the strength and diversity of the company's operations will continue to provide some support.

Tough all over

Diageo's international region, which composes Africa and Latin America, saw six-month revenue increase 18%.

Guinness sales drove a 25% improvement in African revenue, as Nigeria has proved to be a bigger consumer of Guinness than the home market of Ireland.

Its top market by sales, North America, saw revenue climb by 33% -- but by just 4% when excluding currency movements and deals.

Volumes edged 2% on a comparable basis, as operating profit by that measure rose 7%.

Unsurprisingly, it's been tough going for companies under the consumer umbrella as the global economy compels consumers to tighten up their spending on food and drink.

Fortune Brands (FO), for one, swung to a fourth-quarter loss on dwindling revenues, though its liquor business helped prop up the rest of the company.

Last week, Dutch consumer-goods giant Unilever PLC decided to scrap its forecast for 2009 altogether and abandon targets for 2010.

Nestle is due to report results next week, and there are some jitters over whether the consumer-products giant can achieve profit aims.