Diageo shareholders drown their sorrows as sales disappoint

The world's largest distiller today revealed respectable sales growth of 5% year on year, but it was not enough to get shareholders merry...

by Michael Northcott
Last Updated: 15 Sep 2014

Shares in Diageo dipped by more than 2% on Friday morning after the firm revealed weaker-than-expected sales growth of 5% for its first nine months compared with the same period the previous year. The firm blames weaker sales in South Korea (where the Scotch whisky market is in decline), and Brazil and Nigeria where previously buoyant economies are now more subdued and the appetite for good quality spirits is dampened.

For the three months to 31 March, with the effect of new acquisitions stripped out, the firm actually achieved 4% sales growth too. That’s broadly in line with its nine-month figure, meaning that sales growth is steady and consistent – but none of this was enough to keep shareholders happy when the news first broke. The share price has now recovered, and is just a couple of basis points down, but some have obviously been stung by what they see as a disappointing performance.

It’s worth noting (even if you’re one of the touchy shareholders) that there’s plenty to be excited about for Diageo’s future. It is working very hard to expand its footprint in emerging markets, and the firm reported sales up a massive 14% in Latin America and a solid 9% in Africa and eastern Europe. And importantly, the firm’s competitors are nothing to worry about at the moment. SABMiller is bimbling along at a similar rate, having just posted a trading update showing 7% sales growth last year. Its sales in Europe are still slow like Diageo’s and the results are in line with analysts' expectations. So no-one’s motoring ahead of Diageo’s ‘disappointing’ results.

Chief executive Paul Walsh said: ‘Diageo's performance for the nine months is in line with the first half and our expectations. Strong performance from our biggest business, US spirits; the continued growth of spirits in Africa; share gains across our markets in Asia Pacific and double digit growth of Johnnie Walker, Crown Royal, Buchanan's, and Tanqueray are the highlights of the quarter. Given our market positions and geographic diversity we remain confident that Diageo's performance continues to be in line with our medium term guidance.’

Anyway, it is Friday, and if you’ve lost any money on the markets, thanks to Diageo’s movement this morning, perhaps it’s time to go and sink a few. But in the longer term we reckon things still look pretty good for Diageo, which of course was named MT's Britain's Most Admired Company 2013.

Diageo was one of our Most Admired Companies in 2012. Find out more here.

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