Sales Growth At Diageo Plc Slows

Shares in Diageo (LSE: DGE) (NYSE: DEO.US) were little moved in early trade, following the release of the company’s first-quarter statement.

Organic net sales growth increased 3.1%; however, forecasts had been around the 4% mark, while Q1 2012 saw a 5% rise, hence the less-than-enthusiastic response by the market this morning.

Western Europe was the biggest culprit, with organic net sales growth falling by 1.1% compared to the same period last year in the continuation of a trend that’s blighted the industry in recent quarters. Performance in Asia Pacific also slowed, due to “currency-related distributor destocking” and “government policies in China [leading] to a substantial fall in net sales in Diageo’s Chinese white spirit subsidiary”, with growth of only 0.6% in the region.

However, other markets fared better — Africa, Eastern Europe and Turkey saw growth increase by 1.3% despite last year including a very strong quarter in Russia especially, while Latin America and Caribbean was up by 10.9% following a “moderated” quarter. North America was perhaps the standout region, though, as the 5.1% increase reflected further positive momentum with Cîroc, Crown Royal and Ketel One vodka contributing to mix improvement.

Chief executive Ivan Menezes commented:

 “Our performance in the quarter was good given weakness in some markets. The strength of our biggest business, US spirits, underpinned our performance. Our business in Western Europe performed in line with the slightly improving trends we saw in Q4 of F13, although I still expect a low single digit net sales decline for the full year.

“While there are headwinds in some emerging markets, including the impact of the government policies in China, there are also markets in which we continue to deliver robust growth and Diageo’s strength is the diversity of our geographic breadth and broad category reach. We continue to make this strong business stronger and we remain committed to delivery of our medium term guidance.”

The beginning of 2013 saw Diageo’s share price soar as positive sentiment spread through the market, but recent months have seen the drinks company peak and trough with the FTSE. Still, the shares have increased almost three-fold in five years, and if you believe that there’s plenty more positivity to come in the market then you may well want to delve further into the company — for a growth share, that 2.5%+ yield is nothing to be sniffed at.

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> Sam does not own shares in Diageo.