Photographer: Daniel Acker/Bloomberg

Diageo Sales Unexpectedly Drop as All Regions Miss Estimates

Diageo Plc said sales unexpectedly declined in the third quarter as revenue in every one of the Smirnoff distiller’s regions missed analysts’ estimates.

Organic net revenue fell 0.7 percent in the three months ended March 31, the London-based maker of Guinness stout said in a statement Thursday, trailing the median estimate of a 2 percent increase.

The biggest sales declines were in the Asia-Pacific region, where the company is seeking to reduce the level of surplus inventory held by wholesalers, and Latin America and the Caribbean, where consumer demand is being weighed down by currency volatility. Sales also dropped in Europe, while growth in North America and Africa was slightly below analyst estimates.

“This quarter will do nothing to rebuild market confidence,” Exane BNP Paribas analyst Francois Mosnier said in a note, adding that shipments were disappointing. “Destocking was stronger than we expected in Asia and Latin America, and another devaluation in Venezuela took its toll.”

The stock traded 1.9 percent lower at 1,930 pence as of 8 a.m. in London.

Liquor, Corruption

Organic sales in the Asia-Pacific region fell 6 percent. Government anti-corruption measures have curbed shipments of scotch and baijiu liquor in China at a time when the company is also battling weakness across Europe, where revenue declined 1.3 percent in the quarter. Latin American and Caribbean sales slid 10 percent, with the company citing a surplus of inventory in some areas and “phasing issues which will benefit performance in the fourth quarter.”

Diageo faced “tough conditions in the emerging markets and subdued consumer demand in some developed markets,” Chief Executive Officer Ivan Menezes said in the statement. Lower inflation and weak economies will lead to “subdued net sales growth” this year.

In North America, sales rose 0.9 percent, missing the median analyst estimate for 1.2 percent growth.

“Consumers in North America remain the most resilient and while lower gas prices and a more favorable macro outlook have not led to a significant shift, growth in the spirits category is improving,” Menezes said. “Our depletion performance continues to build momentum, although I do not expect to see shipments improve until we have lapped last year.”

Organic sales growth of 8.2 percent in Africa compared with the 9.2 percent median estimate of analysts.

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