Diageo is set to benefit from the rising US spirits market

Diageo is set to benefit from the rising US spirits market

Diageo is benefiting from its large exposure in the improving US spirits market compared to a smaller presence in a weakening China, according to an analyst.  

Earlier today (17 October), the group reported a 5% rise in organic global net sales, despite still being dragged down by struggling Western and Southern Europe markets. Its North America sales were up 6%, however, due to a strong spirits performance. 

A report earlier this month confirmed that the burgeoning premium spirits market is being driven by the US

In a note today, analysts Normura said that Diageo "benefits from its ... large exposure to the US that we see improving and smaller exposure to China where investors are nervous". 

Despite fears around China's weakening economy, Diageo did highlight "strong growth" in the country, especially in Scotch whisky. 

On M&A opportunities for Diageo, Nomura said it still sees "significant headroom" for deals, particularly in emerging markets.

Last month, the group confirmed it is in renewed talks with United Spirits over acquiring a stake in the Indian firm, while on on-going Jose Cuervo speculation, CEO Paul Walsh admitted in August he would like to "deepen the relationship" with the family owners of the Mexican brand.

Emerging markets (EM) currently account for around 40% of the group's business and it has said it expects to increase its EM exposure to 50% by 2015.

Nomura also agreed with Walsh's assessment that today's Q1 numbers were a "solid" start to the financial year. 

Shares in Diageo have recovered slightly today, but are still down in the day's trading at GBP17.67