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UPDATE 3-Diageo's sales get surprise boost from U.S. spirits drinkers

* Organic net sales growth rises 1% vs -4.6% estimate

* N.America sales rise 12%, driven by tequila

* Moet Hennessy dividend dispute resolved - CEO

* H2 sales expected to grow in all regions - CFO (Adds detail on Moet Hennessy dispute, Guinness recall)

Jan 28 (Reuters) - Drinks group Diageo on Thursday reported an unexpected rise in underlying net sales growth for its first half year as people splurged on premium tequila and bourbon at retail stores in the United States, sending its shares up as much as 4%.

The coronavirus pandemic has hit beer and spirits makers as bars, restaurants and night clubs around the world had to close and as travel was restricted.

But as more people drink at home, Diageo, maker of Johnnie Walker whisky, benefited from a strong performance in United States, where it generates 80% of sales from off-licence retail and grocery stores.

Consumers drank more premium spirits such as Don Julio and Casamigos tequilas , Ciroc Vodkas and Bulleit bourbon.

North America sales rose 12% in the six months to Dec. 31, driven by strong consumer demand and a shift towards spirits over beer and wine. Retailers also replenished more stock ahead of the holiday season. Beer sales dropped 15%.

In the United States, which contributes 39% to sales and makes up nearly 45% of Diageo’s profits, the penetration of spirits has grown three times that of beer and wine, Chief Executive Ivan Menezes said and he was confident these drinking habits would stick.

While U.S. was a bright spot, the company struggled in other markets such as Europe and Turkey where sales declined 10% and in the Asia Pacific where they fell 3%, despite strong performance in China.

The group, however, expects sales growth in all regions in the second half year, given easier comparables with last year, strong momentum in North America, and re-opening of bars and restaurants in some other regions, chief fianancial officer Kathryn Mikells told Reuters.

Overall, Diageo, the world’s largest spirits maker, reported a 1% rise in organic net sales growth for the first half, compared with expectations for a 4.6% drop, according to company supplied estimates.

“Time for us to eat humble pie. Diageo announced an incredibly resilient set of H1F21 results this morning, with beats across the board,” Bernstein analyst Trevor Sterling wrote in a note.

Menezes also said that Diageo had ended a dividend dispute with LVMH, with the French company agreeing to pay it 181 million euros in dividends from their Moët Hennessy wine and spirits joint venture.

Diageo had filed arbitration proceedings against Moet Hennessy last year after it said it was owed dividends for 2019.

“The dividend dispute is resolved and our relationship with LVMH remains very strong,” CEO Menezes said.

Diageo also said it would bring back its non-alcoholic Guinness beer to markets this year after recalling the new drink due to “microbial contamination” in November.

Diageo also raised its interim dividend by 2% to 27.96 pence per share. (Reporting by Siddharth Cavale in Bengaluru; editing by Arun Koyyur; Editing by Jane Merriman)

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