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Diageo Rises to Record as Sales Advance on Emerging Markets

Diageo Sales Beat Estimates, Led by Emerging-Markets Growth
A customer removes a bottle of Smirnoff vodka, a Diageo Plc product. Photographer: Chris Ratcliffe/Bloomberg

Diageo Plc, the world’s largest distiller, advanced to its highest price ever in London trading after first-quarter revenue growth beat analyst estimates, led by gains in Latin America, Asia and Africa.

So-called organic sales rose 9 percent in the three months ended Sept. 30, the London-based company said today, exceeding the 5.1 percent median estimate of 13 analysts. Diageo maintained its forecast for improved first-half net sales growth. The shares rose 4 percent to 1,331 pence in London, the highest closing price since 1988.

Sales in the quarter were “marginally ahead” of Diageo’s expectations, benefiting from some unique factors, which aren’t expected to reoccur, Chief Executive Officer Paul Walsh said in the statement. The volume of drinks sold rose 5 percent.

“It’s an extremely impressive number even if you adjust for some of the one-offs,” Melissa Earlam, an analyst at UBS AG in London, said today. “This really puts to bed some fears in the market that they couldn’t deliver the 6 percent growth this year,” she said, estimating that even excluding one-off factors the company reported sales growth of 7 percent.

Diageo said in August it would target average organic sales growth of 6 percent in the “medium term” as well as widening its operating margin, a profitability measure, by 2 percentage points in the next three years. That’s a faster rate of sales growth than the company reported in its last fiscal year.

Emerging Markets

The maker of Johnnie Walker and Smirnoff vodka is among consumer-goods companies facing slower sales growth in Europe and the U.S. while reporting soaring demand in emerging markets. Organic revenue rose 30 percent in Latin America and the Caribbean, 14 percent in the Asia Pacific region and 9 percent in Africa, Diageo said.

Organic sales increased 5 percent in North America and 6 percent in Europe during the quarter, the distiller said. “Organic” sales exclude the effect of acquisitions, disposals and currency fluctuations.

“Diageo benefited from impressive growth in its emerging markets, while Europe and the U.S. beat expectations,” Martin Deboo, an analyst at Investec in London, wrote in a note.

Diageo said today that foreign exchange movements may cut operating profit by about 35 million pounds ($55.3 million) this year, higher than the guidance given at its preliminary results.

The company is “alert to any impact which the fragile global economy may have on trading patterns,” Walsh said.

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