Tuesday 23 January 2018

Diageo shares fall as sales miss the mark

A worker walks past the headquarters of Diageo in London.
A worker walks past the headquarters of Diageo in London.

Paul O'Donoghue

Irish-listed drinks giant Diageo saw its shares dip yesterday after reporting weaker than expected third quarter sales.

The maker of Johnnie Walker whisky, Smirnoff vodka and Guinness beer said net sales in the three months to March 31, the third quarter of its financial year, fell 0.7pc, whereas many analysts had expected an increase.

The company blamed the timing of shipments in Latin America, currency devaluations, plus the impact of retailers and distributors reducing inventories to more closely reflect expected demand.

It was the seventh straight quarter of nearly flat sales, said analysts at brokerage Jefferies, who reiterated their "buy" rating on the stock due to relative valuation and performance.

"Diageo remains as unloved as we can remember," Jefferies said. Reuters data shows the stock trades on 19.8 times forecast earnings against a sector average of 21.6.

"We remain believers in a recovery," Jefferies added. "But recovery is clearly going to take a while."

Diageo shares, which spiked on Wednesday to their highest in nearly three months, fell more than 2pc.

However in North America, Diageo's biggest profit earner, sales rose 0.9pc, an improvement from the decline of 0.1pc the region saw in the last half of 2014.

Diageo executives said earlier this year they hoped to see increased US demand as lower gasoline prices meant more spending money for consumers.

Compared with the previous six months, sales trends also improved in Africa, but worsened in Europe, Asia Pacific, Latin America and the Caribbean.

The company has also recently hit a speedbump in Indonesia. Although not hugely significant in terms of revenue, the country, which is one of several emerging markets on which global drinks companies are increasingly pinning growth hopes, has decided to ban the sale of drinks with an alcohol content between 1pc and 5pc in convenience stores and small shops. Diageo has called on the government to delay the measure for 12 months.

Chief executive Ivan Menezes said: "Our performance in the quarter reflects continued tough conditions in the emerging markets and subdued consumer demand in some developed markets."

The company also blamed British sales that fell by a high single-digit percentage due to a tough comparison with last year, when sales were boosted as customers stepped up purchases ahead of an expected increase in alcohol duties.

Diageo shares were down 2.3pc to 1,921 pence in London shortly on the back of the statement yesterday.

Irish Independent

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