UK: Diageo Q1 sales rise, but analysts expected more
- Q1 net sales increase by 3.1%
- Volumes in the three months to end of September up by 0.6%
- LatAm & Caribbean leads the way; sales leap by 10.9%
- Medium-term guidance of 6% sales growth maintained
Diageo released its Q1 trading update earlier today
Diageo has posted a weaker-than-expected sales lift in its fiscal first quarter, blaming the end of its Jose Cuervo agreement for the performance.
The company said earlier today (17 October) that net sales in the three months to the end of September rose by 3.1% on the corresponding period a year earlier. Volumes in the quarter inched up by 0.6%.
The termination of the global (outside Mexico) sales, marketing and distribution deal involving the Beckmann family's Jose Cuervo Tequila brand at the end of June was cited as a factor behind the sales numbers.
Geographically, Diageo's Latin America & Caribbean unit was the star performer, delivering a sales jump of 10.9%.
North America continued to be the group's bedrock, with sales in the region rising by 5.1%. The Africa, Eastern Europe & Turkey unit saw sales rise by 1.3%, while Asia Pacific was up, just, by 0.6%. Western Europe moderated slightly in the quarter, with sales slipping by 1.1%, an improvement on Diageo's fiscal 2013, when the region posted a 4% slide.
"Our performance in the quarter was good given weakness in some markets," said CEO Ivan Menezes. "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."
In a note published soon after the results, analyst UBS described the performance as a "softer than expected start to the year".
"We lower 14FY organic sales growth forecast from +5.3% to +4.9% reflecting this weaker-than-expected Q1FY performance for Africa, Eastern Europe & Turkey, and Asia Pacific," UBS said.
Diageo's medium-term guidance remains to deliver net sales CAGR of 6%.
To read Diageo's official statement from today, click here.
For a look at the company's performance on a regional basis, click here.
For an analysis of the update, click here.
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