Feb. 12 (Bloomberg) -- Diageo Plc, the world’s biggest liquor maker, lowered its profit forecast and signaled it may cut jobs as demand for Johnnie Walker whisky and Smirnoff vodka stalls, hurt by deteriorating economies around the world.

Operating profit in the 12 months through June will rise 4 to 6 percent, excluding currency swings and acquisitions, London- based Diageo said today, below the previous range of 7 to 9 percent. The distiller also said it will halt stock buybacks to bolster “financial strength” and consider acquisitions this year if weaker rivals put assets up for sale.

Chief Financial Officer Nick Rose said “job cuts will not be excluded” from a restructuring program aimed at saving 100 million pounds ($142 million) in fiscal 2010. “Given the uncertain environment, we think it is prudent to focus on our cost base and be more efficient,” he said on a conference call.

Diageo slid as much as 6.8 percent in London trading, the most in almost four months. Excluding acquisitions, sales by volume fell 2 percent and declined 5 percent in Europe, driven by a “deteriorating” market in Spain, where Diageo cut off some customers on concern they may not pay their bills.

“This reads like an austerity budget,” Martin Deboo, an analyst at Investec in London, said today. “What’s hurt the most is the slowdown in volumes, especially in Europe.” Deboo has a “buy” recommendation on the shares.

Cost Cuts, Buybacks

The cost-cutting measures will result in a one-time expense of 200 million pounds, Diageo said. The company also reported a 17 percent increase in first-half profit as other currencies’ gains against the pound raised the value of overseas revenue.

The outlook for the second half of the fiscal year is “difficult to predict” and the company will “continue to see the impact of slowing consumer demand in many markets,” Chief Executive Officer Paul Walsh said at a press conference.

Diageo fell 30 pence, or 3.3 percent, to 877.5 pence in London trading, its lowest closing price since Nov. 21, and led a slide by liquor stocks. Absolut maker Pernod Ricard SA declined 3.9 percent in Paris, and Davide Campari-Milano SpA fell 0.9 percent in Milan.

Diageo spent 352 million pounds on its “scaled back” share buyback program in the first half before deciding to halt repurchases. Rose said the company has “flipped the weighting from balance-sheet efficiency to balance-sheet strength.”

‘Strategic Acquisition’

“This gives us the flexibility to make the investments that will strengthen our business even further,” CEO Walsh said at the conference in London. “We generate a lot of cash and yes, we have the financial wherewithal for acquisitions.”

The distiller would consider risking its current A credit rating for a “strategic acquisition” that “really makes a difference to Diageo in the long term,” Rose said.

“There’s going to be a lot of mediocrity coming onto the market this year, but I’d rather pay good prices for good assets than low prices for poor assets,” Walsh said.

India and China are “two places that over the long haul we want to be really strong in,” Rose added. Negotiations to purchase a stake in India’s United Spirits Ltd. are still “very premature,” Walsh said in a Bloomberg Television interview.

The quantity of Smirnoff sold in the first half slowed to 1 percent growth, down from an 8 percent pace in 2008. Johnnie Walker shipments fell by 6 percent, down from 5 percent growth.

Dollar Gains

Net income rose to 1.14 billion pounds, exceeding the 1.08 billion-pound median estimate of seven analysts surveyed by Bloomberg. So-called organic operating profit, which excludes exchange rate movements and acquisitions, increased 6 percent.

Currency swings, such as the dollar’s 27 percent gain against the pound in the final six months of 2008, added 103 million pounds to operating profit and will boost earnings by 200 million pounds for the year and fiscal 2010, Rose said.

Revenue, excluding acquisitions, rose 3 percent to 5.07 billion pounds, less than 2008’s 7 percent growth on that basis.

Net sales of spirits in North America, where Diageo generates about 35 percent of earnings, rose 8 percent. Walsh said so-called premium brands, such as Smirnoff, “have been the most resilient in the U.S.” as the economy worsens, avoiding the slowdown in more expensive “ultra premium” brands, which include Johnnie Walker Blue Label.

Revenue in what Walsh described as “quite challenging” European markets fell 3 percent, compared with a 3 percent increase in 2008. In the Asia-Pacific region, sales gained 2 percent, while in the rest of the world, including Latin America and Africa, revenue rose 11 percent, boosted by Guinness beer.

Diageo shareholders will get a first-half dividend of 13.9 pence a share, up 5.3 percent from 13.2 pence a year earlier.

To contact the reporter on this story: Andrew Cleary in London at acleary7@bloomberg.net.

Last Updated: February 12, 2009 12:28 EST