Diageo's growth model remains intact and the drinks giant is set for steady growth in 2010, according to one analyst.

Cost savings and currency gains are likely to boost Diageo's profits in its current fiscal year, to the end of June 2010, analyst group Sanford C Bernstein said in a note today (13 January).

Bernstein also expects a "steady recovery" in Diageo sales growth, particularly in the second half of the year, after destocking by distributors and down-trading by consumers in the economic downturn marred results in 2009. 

"Net-net, there is considerable debate as to whether Diageo's growth model is broken or merely stalled," said Bernstein, commenting on the Smirnoff and Johnnie Walker producer's move protect profits by cutting advertising and promotion spend in 2009.

"We are in the latter camp," said Bernstein.

It added: "We expect a strong rebound for Diageo's emerging market businesses, driven by Latin America and Africa. Based on our analysis of previous US recessions, we expect spirits volume growth to recover in 2010, as the socio-demographic fundamentals remain positive."

Bernstein predicted late last year that US spirits sales were growing by around 1% year-on-year in volume.

If correct, the industry will use this as proof of the market's resilience to recession, although the on-trade is known to have suffered worse than grocery sales channels.

Diageo North America president, Ivan Menezes, said in December that spirits sales remained depressed in the US during the country's holiday season.

His comments appear to tally with Bernstein's prediction this week of a sluggish return to growth for the premium spirits sector in the US.

Despite having increased market share via volume growth ahead of the market, Diageo is unlikely to see price mix growth until fiscal 2011, the analyst group said.