Reuters London
Diageo, the world’s largest spirits maker, reported lower-than-expected sales for the six months to December, hurt by foreign exchange rate moves and discounting on vodka in the US, its biggest and most profitable market.
The maker of Smirnoff vodka, Johnnie Walker whisky and Guinness stout warned last month that US Thanksgiving sales were disappointing and it expected sales to be broadly flat in the region, where competition among vodka makers has sharpened as trendy drinkers moved to brown spirits such as bourbon.
Chief financial officer Deirdre Mahlan said yesterday that Diageo was not yet feeling the benefit of an improving economic picture in the US, though it hoped to do so as lower gas prices meant more money to spend on extras such as alcohol.
Elsewhere, Diageo has been plagued by volatility in emerging markets, from a crackdown on extravagant spending in China to an economic slowdown in Brazil. Overall, Diageo said net sales in the six months to December 31, the first half of its fiscal year, were £5.9 billion (R103.4bn), below analysts’ average estimate of £6bn.
On an organic basis, that represents a decline of 0.1 percent, with performance about flat in both developed and developing markets. There was an improving trend, however, from a dip of 1.5 percent in the first quarter to a rise of 0.7 percent in the second quarter.
Mahlan said the improvement was due to easing comparisons with the prior year.
“As we came into the second quarter, we did start to see the expected improvement,” she said. “Although I would say there are still conditions in a number of markets that are quite challenging from a sociopolitical and macro perspective, or in some cases a weak consumer.”
Earnings before one-off items were 53.7 pence per share.
The results were hurt by the strengthening of the pound versus currencies such as the Venezuelan bolivar, Russian rouble and euro. At current rates, Diageo estimates foreign exchange to hurt net sales for the full year, ending in June, by £120 million, operating profit by £85m, and to increase net finance charges by £10m.
Diageo, which did not give financial forecasts, said it still expected to “deliver on its performance ambition”, which includes the aims of “top-tier” net sales growth for its industry and “consistent” margin improvement.