Diageo’s sales miss estimates as emerging markets weaken
FMCG SUPPLIER NEWS
IOL Business/ Bloomberg - Apr 19th, 08:23
Diageo’s third-quarter sales missed estimates, the biggest distiller reported yesterday, as sluggish European demand and slower-than-expected growth in emerging markets offset expansion in the US.
So-called organic revenue climbed 4 percent year on year in the quarter to March, the London-based firm said yesterday, compared with the median estimate of 10 analysts for a 5 percent increase. Volume declined 1 percent.
The shares fell 2 percent in early trade in London, but were flat by 3pm.
Diageo is among consumer firms seeing slowdowns in growth or even contractions in emerging markets, which had been helping offset falling demand in Europe.
SABMiller reported an unexpected decline in sales in Latin America yesterday, while Nestlé said it had experienced “softening” in certain emerging markets including Asia.
“The emerging market growth slowdown in the quarter may worry people,” UBS analyst Melissa Earlam said. “Consensus organic sales growth estimates for the year probably need to nudge down for Diageo.”
Diageo’s organic sales advanced 5 percent in the first nine months of the financial year but revenue slid 4 percent in western Europe. North American sales climbed 6 percent.
Earlam cut her annual sales growth estimate to 5.4 percent from 5.6 percent. The improvement in the higher-margin US might offset declines in less profitable markets like Brazil, she said, and “while estimates for full-year earnings aren’t changing, the weaker-than-expected third-quarter performance isn’t great for sentiment.”
Diageo has been snapping up assets in emerging markets to gain access to the growing middle classes with disposable income to spend on its spirits.
It bought Mey Icki in Turkey in 2011, helping nine-month sales in Africa, eastern Europe and Turkey grow 9 percent. It is buying a 27 percent stake in India’s United Spirits.
“Given
our market positions and geographic diversity we remain confident that Diageo’s performance continues to be in line with our medium-term guidance,” chief executive Paul Walsh said yesterday.
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