Diageo’s Chinese Sales Decline Moderates in First Quarter

Diageo Plc, the world’s biggest distiller, said sales declines in China moderated in the first quarter, helping to mask a steeper drop in total sales than analysts expected.

Revenue in mainland China fell about 20 percent in the three months ended Sept. 30, the London-based maker of Johnnie Walker Scotch whisky said today, an improvement on the previous year’s drop of about 50 percent.

China has weighed on liquor producers as the country’s crackdown on lavish spending has led distributors to deplete inventory. Today’s figures from Diageo indicated that the worst may be past, helping the shares gain the most in more than a year even though the company gets less than 1 percent of sales from the country.

“Going forward, we expect Asia Pacific to be down, but not to the same extent,” said James Edwardes Jones, an analyst at RBC Capital Markets. “There is a good chance that this should be the worst quarter in terms of organic sales growth for the year.”

The shares rose 0.6 percent to 1,719 pence at 9:15 a.m. in London after gaining as much as 3.5 percent, the steepest intraday advance since July 2013. Rival Remy Cointreau SA rose a similar amount in Paris after reporting a 12 percent decline in sales of Remy Martin cognac in the second quarter.

“The big news story in the spirits sector over the next 12 months will be stabilization and recovery in the Chinese market,” said Mirabaud Securities analyst Jonathan Fyfe.

Spirits maker Pernod Ricard SA, which gets about 10 percent of its revenue from China, is scheduled to report first-quarter results Oct. 23.

North America

Diageo’s first-quarter sales fell 7.4 percent across Asia, missing the 4.5 percent drop anticipated by analysts. Revenue in Europe declined 1.4 percent, also below estimates. The region was hurt by a falloff in Russia and Eastern Europe, along with “continued weakness” in Germany, Diageo said.

In North America, the U.K. distiller’s biggest division, sales increased 0.1 percent.

“Consumer trends in most markets are unchanged and our first-quarter performance is in line with our expectations,” Chief Executive Officer Ivan Menezes said in the statement.

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