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Diageo’s Sales Slip 1.3% On Emerging Market Woes, But North America Still Shows Growth

April 17, 2014

Diageo posted a global sales decline of 1.3% for the three months through March, as economic weakness across emerging markets was only partially offset by continuing progress in North America and Europe The company’s Asia Pacific region, where sales fell 19% for the quarter, was the main culprit, with “lower trade confidence across a number of markets,” as well as falling sales of Chinese white spirits and political instability in Thailand cited as contributing to the slide.

Diageo added that flagging consumer confidence in Russia led to declining sales in that market as well, although the company managed to take share in the quarter. Bright spots included ongoing double-digit growth in India, where in recent days Diageo doubled down on its bid to take majority control of United Spirits Ltd., offering $1.9 billion to shareholders to raise its stake to 55%.

Meanwhile, Diageo saw momentum continue in North America and Europe over the past three months, with both regions posting 1.2% sales growth. The company’s North American progress decelerated on a percentage basis from 4.6% in the six months through December; however, a particularly robust third quarter a year ago presented a tough comparable. For the full nine months through March, Diageo’s North America sales rose 3.7%, Europe fell 0.4%, Asia Pacific was down 9%, Latin America increased 6% and Africa, Eastern Europe and Turkey were roughly flat. Overall, the company’s global net sales have inched up 0.3% in its fiscal year to date.

“Consumers in North America are most resilient, as are consumers of our reserve brands in most markets,” said Diageo CEO Ivan Menezes. “In Western Europe the economy, consumer confidence and our business are all improving slowly but consistently. In the emerging markets currency volatility and caution about the outlook for GDP growth are negatively impacting business and consumer confidence.” Menezes added that the group’s third quarter results only heightened its resolve to delayer the organization and deliver on its ongoing efficiency program, while continuing to invest in emerging markets, whose performance is expected to turn around over the longer term.

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