Diageo Sales Beat Estimates as Emerging Markets Gain

Diageo Plc, the maker of Smirnoff vodka and Guinness stout, reported third-quarter sales that beat analysts’ estimates on growth in emerging markets from Africa to Latin America.

So-called organic sales, which exclude the impact of acquisitions or currency movements, rose 12 percent in the three months through March, the London-based company said in a statement. That beat the median estimate of 10 analysts surveyed by Bloomberg for a 7.1 percent increase, and followed a 7 percent drop in sales a year ago.

French rivals Pernod Ricard SA and the wine and spirits unit of LVMH Moet Hennessy Louis Vuitton SA reported increases in organic sales for the same period as China led renewed demand for premium-priced liquor and distributors began to boost inventory levels. Diageo is more reliant on the U.S. market than its main competitors, generating about 40 percent of earnings there, where the consumer recovery has been slower.

“This is a big beat,” said Trevor Stirling, an analyst at Sanford C. Bernstein in London with an “outperform” rating on the shares. “We expect this has been driven by improved trends in the U.S. spirits market and robust growth in Latin America.”

Diageo rose as much as 21 pence, or 1.9 percent, to 1,102 pence in London trading. The shares are up 1 percent this year, compared with Pernod’s 3.1 percent climb.

Profit Forecast

The company maintained its forecast for full-year organic operating profit to increase by a “low single-digit” percentage.

Revenue climbed 4 percent in the first nine months of Diageo’s fiscal year, equally driven by organic growth and the benefit of currency movements, the company said. The world’s largest distiller has seen stronger consumer recovery in the emerging markets while developed markets remain “fragile,” Chief Executive Officer Paul Walsh said in the statement.

“Consumer trends remain difficult to predict, especially in the mature markets,” Walsh said. The company’s performance “benefited from comparison against a weak third quarter last year” and an earlier Easter, he added.

Pernod last week reported a 16 percent rise in organic sales for the quarter, compared witha 12 percent drop in the year-earlier period. Moet Hennessy said sales rose 20 percent in the period, after a 22 percent drop a year ago.

Over the past two years, “Diageo actually did better than Pernod, with Diageo’s sales up 5 percent and Pernod’s up 4 percent,” said Matthew Jordan, head of research at Matrix Corporate Capital LLP in London. “Both are very strong.” Jordan has a “buy” rating on the shares.

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