Sales up across the board at Diageo

By Dan Colombini

- Last updated on GMT

Related tags: Net sales, Developed country

Diageo turned in a spirited first quarter performance, according to analysts
Diageo turned in a spirited first quarter performance, according to analysts
Drinks giant Diageo has made a positive start to its financial year amid concerns from City analysts that the firm’s targets were over ambitious.

The firm reported a net sales figure of £29M for the quarter ending September 30, representing a 9% rise from last year. Diageo attributed this to the acquisition of Turkish spirit manufacturer Mey Icki in August.

European net sales rose by 6%, driven by a lower base comparison in the Spanish market the previous year. Sales were also up 5% in North America, fuelled by a positive price/mix across all categories with volume falling by 2%.

In Africa sales were up 9%, with the firm performing strongly in all markets except South Africa, which saw negative price/mix due to the growth of lower-priced locally-produced spirits.

Johnnie Walker

In Asia, where sales climbed by 14%, the developed markets delivered low single digit net sales growth. The developing markets grew very strongly led by the performance of Johnnie Walker. The biggest hike was in Latin America and the Caribbean where sales rose by 30%.

Paul Walsh, Diageo chief executive, said: “We have delivered a good start to the new financial year. Net sales growth was marginally ahead of expectations and the quarter did benefit from some one-off factors which are not expected to reoccur in the second quarter.

“Consumer trends are broadly unchanged. We have delivered positive price/mix in North America, an improvement in net sales growth in Europe and we have driven strong growth in the developing markets with net sales up 20%. We continue to expect that net sales growth for the first half will improve on that delivered in fiscal 2011.​”

Some analysts had feared that the firm’s ambitious targets, which include a top-line compound annual growth rate of 6% and 200 basis point increase in operating margins by the end of 2014, would be unachievable. The Eurozone crisis and soaring unemployment rates in the US would block achievement, they argued.

The Financial Times​ reported earlier this week that analysts believed Diageo could not afford to stray too far below a 6% rise in net sales for this year, fearing a loss of credibility for the firm if it did.

Diageo would require the US to contribute 1.5% growth by securing organic growth of 4.5%, the analysts said.

Challenging

Jamie Isenwater, analyst at Deutsche Bank described the targets as “challenging but achievable. ​” The targets assumed zero annual growth for Europe and developed Asia and 10% for emerging markets, he added.

You can distil the guidance down to one question. Can it deliver 4.5% out of the US this year,” ​Isenwater told the publication.

Diageo was likely to benefit from many beer drinkers switching over to spirits, with beer volumes falling by 3%, while spirits are up by roughly the same amount.

As long as that continues, Diageo has a decent chance of hitting its number. But if the beer guys get their act together, Diageo is in trouble,​” he said.

Related topics: Drinks

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