Diageo has reported organic net sales of 3% in the 3 months to 30 September, on volumes up 0.6% - but Western Europe continued to see a decline.
The drinks giant said consumer underlying trends were largely unchanged and growth was being driven by strong spirits performance across North America. Vodka brands Cîroc and Ketel One and Canadian whisky Crown Royal in particular helped this grow 5.1%.
Growth in Latin American and the Caribbean had “moderated”, the company said, to around 10.9%, and a slowdown in Russian sales compared to the same period last year impacted performance across Africa, Eastern Europe and Turkey. Despite 5% growth in Africa – which Diageo described as a “compelling” prospect in the long term – net sales across the region rose only 1.3%.
There was weaker trading in Nigeria and Ghana, expected to recover during the year, and performance in China was impacted by government policies, Diageo said. Performance in South East Asia was also hit by currency-related destocking.
“Diageo’s strength is the diversity of our geographic breadth and broad category reach”
Ivan Menezes
Chief executive Ivan Menezes said that although performance in Western Europe was following the improved trends seen in the last financial quarter of 2013, the region was still expected to return “low single-digit” net sales decline over the full financial year.
However, he added that performance overall was good, given weakness in some markets. “While there are headwinds in some emerging markets, including the impact of the government policies in China, there are also markets in which we continue to deliver robust growth and Diageo’s strength is the diversity of our geographic breadth and broad category reach.”
Muted performance
Analysts described performance as muted and below City expectations of 4% growth, as well as the group’s medium-term compound annual growth rate of 6%.
Phil Carroll of Shore Capital said Diageo’s performance in Western Europe was “not as bad as expected”, and that the company had benefited from restocking in France. However he warned the impact on the first quarter was small and unlikely to lift overall annual sales, and that Southern Europe continued to be “very challenging”.
Investec said weakening emerging markets – which were decelerating fast – were set to make life difficult for Diageo for a while.
“The general issues in emerging markets appear to be both weak demand and trade channel de-stocking,” Investec analyst Martin Deboo said, adding that Africa, Eastern Europe & Turkey region were especially weak and newly acquired Chinese operation Shui Jing Fang remained “challenging”.
Shore Capital left its forecast of annual organic growth unchanged at 5.2% for the time being, pending the outcome of the Christmas trading period.
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