Diageo Third-Quarter Revenue Rises on Emerging Markets

Diageo Third-Quarter Sales Rise
Diageo's European revenue fell 1 percent in the first three quarters after remaining unchanged in the first half, as sales at its Latin America and Caribbean unit advanced 18 percent. Photographer: Mike Wilkinson/Bloomberg

May 3 (Bloomberg) -- Diageo Plc, the world’s biggest distiller, reported third-quarter sales growth, as sales in emerging markets and higher-priced spirits in the U.S. offset declines in Europe.

So-called organic sales growth, which excludes the effect of acquisitions and currency fluctuations, rose 6 percent in the three months ended March 31, the company said today. That’s a faster pace than the 5 percent median estimate of 12 analysts surveyed by Bloomberg News.

Diageo had “solid” organic revenue growth, Melissa Earlam, an analyst at UBS AG in London, wrote. She increased her estimates for full-year sales and earnings before interest and tax after the report.

Sales grew fastest at London-based Diageo’s Latin America and Caribbean unit during the first nine months of the year, advancing 18 percent. North America showed a 5 percent improvement compared with last year as consumers drank more expensive spirits. The U.S. is the biggest market for distilled drinks.

The company said consumer trends continued to be “robust” in Latin America even as changes in shipments cut the third-quarter growth rate. The effect is expected to reverse in the fourth quarter.

Cautious on Europe

European revenue fell 1 percent in the first three quarters, Diageo said. The company is “cautious” about the outlook for western Europe despite a “strong performance” in Germany in the quarter. Economic conditions in Spain and Greece are stinting sales for distillers in southern Europe.

“Diageo is well-positioned with our balance of businesses across categories and with a large and increasing presence in the faster-growing emerging markets,” Chief Executive Officer Paul Walsh said today in the statement, saying performance this year was in line with the company’s forecasts.

Diageo’s shares slid 0.6 percent to 1,580.5 pence as of 8:29 a.m. in London. The stock has increased 12 percent this year.

The volume of drinks sold in the quarter rose 3 percent, matched by price increases and consumers choosing more expensive products, Diageo said. It expects foreign exchange movements, primarily a weak U.S. dollar, to cut full-year operating profit by about 25 million pounds ($40 million).

The maker of Smirnoff vodka and Johnnie Walker whisky has a goal for organic sales growth of 6 percent in the “medium term” and to widen its operating margin by 2 percentage points in the next three years.

Competitor Pernod Ricard SA reported a 3 percent sales boost during the same three-month period after some French purchases were booked before a tax increase on Jan. 1.

To contact the reporter on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net