Diageo says making progress turning around performance

(Adds details, comments from CFO)

LONDON, Jan 28 (Reuters) - Spirits giant Diageo (LSE: DGE.L - news) on Thursday predicted a turnaround in its North American business, saying that sales in its most profitable market would grow in the second half of the year.

The maker of Johnnie Walker scotch, Smirnoff vodka and Guinness beer has been struggling with weak performances for several quarters, especially in vodka due to a current preference for "brown spirits" such as bourbon and rum.

The company is working to improve its performance by tweaking its business model to focus more on sales from wholesalers to retailers, rather than its shipments to wholesalers.

The change has put pressure on sales in the near term but is designed to reduce industry inventories and better align the company's shipments with consumer demand.

In the first half of its fiscal year which ended on Dec (Shanghai: 600875.SS - news) . 31, Diageo's sales rose 1.8 percent on a like-for-like basis, slightly better than analysts were expecting, according to analysts at Nomura.

"These results signal an improvement in top-line momentum and supports our view that the business is on the turn," Nomura said.

North American sales fell 2 percent, in line with company expectations. They were hurt by the sale of assets such as Diageo's wine business as well as the timing of launches of new Ciroc vodka flavours.

But North America "will be back to top-line growth in the second half," Diageo's new chief financial officer Kathryn Mikells said, adding that it had underperformed rivals in the region.

On a reported basis, Diageo said net sales fell 5 percent to 5.6 billion pounds ($8 billion). Earnings per share came in at 56.1 pence.

For the full year, Diageo repeated its goal for volume growth to drive stronger a top-line performance, with margins improving slightly.

"I expect to see an overall improved top-line performance in the second half, led by shipment growth in U.S (Other OTC: UBGXF - news) . spirits," Mikells said in a presentation posted online. "Margin will come in roughly flat in the second half."

Looking further ahead, Diageo reiterated that it expects revenue to increase by a mid single-digit rate from fiscal 2017.

Diageo shares were down 0.3 percent at 1000 GMT.

($1 = 0.7015 pounds) (Reporting by Martinne Geller in London; Editing by David Clarke (Toronto: CKI.TO - news) )