Global drinks giant, Diageo, issued a warning to the market yesterday, saying that because of tough trading conditions its full-year targets looked "increasingly challenging". The group's shares slipped 8% on the news which was interpreted by the market as a bad portent for the drinks industry as a whole.

However, Diageo said that it was not issuing a profit warning and said that its targets of 8% to 10% organic sales growth and double-digit profit growth were still achievable. "Given world events and the more difficult world economic environment, current-year targets do look increasingly challenging," Paul Walsh, the chief executive, told the annual shareholders meeting.

Diageo also announced that it was pulling the plug on its latest RTD launch, Captain Morgan Gold, which had not been well received by consumers. The withdrawal of Captain Morgan Gold from the US will result in an £18m charge.

"The ready to drink category in the US is highly competitive. Smirnoff Ice continues to lead this category by a clear margin, and Diageo is building brand awareness and loyalty for the product and its parent brand. In order to ensure focus on the next ready to drink offerings, Diageo has decided to withdraw Captain Morgan Gold from distributors. As announced at the preliminary results, Diageo has been disappointed with the performance of this product. There will be an additional charge of approximately £18 million  in  the current financial year relating to stock held by distributors," the company said.

In the Diageo's major markets, North America's premium spirits market "remained healthy" although the 'next generation growth' strategy implemented in the US has led to "some initial disruption to shipments", the company said, although it also commented that "this now seems to be coming to an end."

In the UK Diageo said: "Diageo's ready to drink products are performing relatively well in a category that has been hit by an increase in excise duty. Diageo has remained competitive on price across its collection of ready to drink products, a collection that is now enhanced following the successful launch of Smirnoff Black Ice."

While in Ireland, Guiness was again growing share in the beer market and the introduction of Smirnoff Ice resulted in volume growth and good share gains for Diageo in the ready to drink category.

In Spain though, the slowdown in the economy has impacted sales in that country, Diageo said. Volume in the Scotch whisky category has declined, although J&B has made a small share gain. Buthe comoany did say that overall, Diageo's relative performance in premium drinks here has benefited from the very strong growth of the dark rum category led by Diageo's brands, Cacique (ex-Seagram) and Pampero.

As anticipated, the overall performance of the company's key markets has been adversely impacted by continued social and political unrest and economic difficulties in Latin America. The economic climate in Brazil and Venezuela has worsened since the beginning of the current financial year and at the end of the first quarter operating profit in Latin American key markets was down approximately £15 million against the prior period.

"Diageo has faced economic pressures of this nature before and is using the expertise already built to mitigate its exposure. Diageo continues to focus on long-term brand building to protect its future and to grow share for its brands," it said.

In response to the statement, the investment bank, Credit Suisse First Boston, said it had cut its price target on Diageo to 950 pence per share from 1,000p but added that the group remained its top European sector pick.

"Yesterday's statement has grounded market forecasts at a new level but the stock still offers double digit earnings growth over the next three years, significant returns upside and a revenue growth rate of 6% or more," CSFB analysts wrote in a research note.