Analysis - Developed markets strong for Diageo in Q1, emerging markets weaker
One analyst asks Diageo: Isn't it ironic?
Diageo's performance in its first quarter carries a hint of irony for one analyst, who has highlighted better developed markets numbers versus weakening emerging markets for the group.
Earlier today (17 October), Diageo reported a 3.1% lift in sales for the three months to the end of September. While the Latin American & Caribbean and North America divisions posted 10.9% and 5.1% growth, respectively, Africa, Eastern Europe & Turkey and Asia-Pacific performed less impressively, with sales from the units rising by 1.3% and 0.6%.
In a note this morning, Investec re-stated its 'Sell' recommendation for Diageo. "The story of the update is weakening emerging markets (EMs), consistent with our sell thesis that EM’s are set to make life difficult for Diageo for a while," the analyst said.
"The irony of the Q1 - mirroring trends seen elsewhere - is that developed markets came in slightly ahead of expectations."
Investec said it reads the first quarter as a miss for Diageo, citing consensus expectation of 4% sales growth. "We expect the FY14 organic growth consensus of 5.3% to come under pressure this morning."
UBS, meanwhile, agreed that the performance was "softer than expected", but noted that "Q1 is a small quarter representing circa 20% of annual sales". The analyst lowered its full-year organic sales growth forecast from 5.3% to 4.9%.
Diageo's is targetting sales growth of 6% per year in the medium term, a position it reiterated in its results today.
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