A Chinese government crackdown on extravagant spending has slammed sales of Remy Martin cognac and Diageo's ShuiJingFang, a brand of the Chinese spirit baiju. At the same time, customers in other Asian countries have been reducing inventory levels, hurting the drinks companies more broadly.

The companies' results on Thursday still showed the effects of these problems, with Diageo's Asia Pacific sales down 7.4 percent, but the forecasts raised some investor hopes that things are slowly getting better.

"In our view, there is a good chance that this should be the worst quarter in terms of organic sales growth for the year," RBC Capital Markets' analyst James Edwardes Jones said, referring to Diageo.

Diageo shares were up 0.4 percent at 0925 GMT (10:25 a.m. BST) while Remy edged 0.4 percent lower, after initial gains. The Stoxx Europe 600 Food & Beverage EUR Price Index was down 0.9 percent, hit by worse-than-expected results by Nestle, the world's largest packaged food and drink maker.

SALES SEEN HIGHER

Diageo, the world's largest spirits company and maker of Johnnie Walker Scotch and Smirnoff vodka, said overall organic net sales fell 1.5 percent in the three months to Sept. 30.

The strength of higher-priced "reserve" brands partially offset the impact of a 3.5 percent decline in volume in the three months, normally its least important quarter of the year.

However, Diageo said it expected sales to increase for the full year.

Remy Cointreau also said it expects higher full-year sales, after declines eased slightly in its fiscal second quarter to 5.5 percent from 5.7 percent in the first quarter.

The namesake Remy Martin cognac, which accounts for more than half the company's sales, saw sales fall 11.8 percent in the second quarter, an improvement from the 15.3 percent decline in the first quarter.

"There is no denying that the performance of the division should materially improve in (the second half) due to very easy comparisons, but the issue is the magnitude of the rebound," said Bryan, Garnier & Co analyst Virginie Roumage.

(Reporting by Martinne Geller; editing by Susan Thomas)

By Martinne Geller

Stocks treated in this article : REMY COINTREAU, Diageo plc