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Sales Growth At Diageo Plc Fails To Meet Target

Shares in Diageo (LSE: DGE) (NYSE: DEO.US) dipped marginally in early trade this morning, following mixed preliminary results.

Despite reporting a seemingly positive organic growth in net sales of 5%, it fell just short of the 6%-per-year growth figure that the alcoholic beverages company had been targeting.

Management blamed the shortfall on “weakness in some markets”, which includes the well-documented tightening of regulations in China over ‘gifting’ in March that banned high-level military officials from indulging in alcohol during official visits.

However, shareholders were cheered by an 11% rise in earnings per share (pre-exceptional items), contributing towards the recommended full-year dividend lifting by 9% to 47.40p, which puts Diageo on a consensus yield of around 2.4%.

This was boosted by pre-tax profits rising 8% organically to £3.53bn, driven by 0.8 percentage points of margin expansion, while marketing investment increased 5%, focusing on Diageo’s strategic brands.

Areas that outperformed included the lucrative market in North America where net sales increased by 5% and operating profit by 9%, while emerging markets — whose sales now contribute 42% of Diageo’s business, following 11% net sales growth and acquisitions which added £233m — saw operating profits lift 18%.

Chief executive Ivan Menezes commented:

“Price increases in each region, positive mix in North America and Latin America and the rigour we have in managing our cost of production and controlling our overheads drove significant expansion in operating margin. 

 “Innovation is driving growth in every region, with our biggest launches in US spirits where we continue to lead the innovation agenda in the industry. Elsewhere, the investments we have made to enhance our routes to market in Africa, Latin America and Eastern Europe have driven strong growth.

“This year, we have again made a strong business stronger and we remain on track to deliver our medium term guidance.”

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> Sam does not own shares in Diageo.