Diageo Q3 Organic Net Sales Slide 0.7%; Stock Drops

(RTTNews) - Brewer Diageo Plc. (DGE.L, DEO) Thursday said net sales on an organic basis slid slightly in the third quarter, reflecting continued tough conditions in the emerging markets and subdued consumer demand in some developed markets. The stock fell over 3 percent in early trade.

Organic net sales were down 0.7 percent in the third quarter, and slipped 0.3 percent in the nine-month period. Volume was down 0.8 percent in the quarter and fell 1.7 percent in the nine month period.

In an Interim management statement for the nine months ended March 31, the firm said reported net sales grew 4.6 percent during the period. Acquisitions, principally of United Spirits Limited, contributed 700 million pounds. But this was partially offset by an adverse impact of currency movements of 298 million pounds and a reduction of 28 million pounds due to disposals.

Diageo said performance improved in North America by 0.9 percent, led by the success of Crown Royal Regal Apple which was the biggest driver of increased shipments in US Spirits & Wines. All regional sales comparisons are on organic basis.

In Europe where sales dropped 0.3 percent, the performance in the quarter saw a high single digit net sales decline in Great Britain. This was mainly because a buy up ahead of an expected duty increase brought forward sales into the third quarter last year.

Africa delivered a stronger performance in the quarter with a 5.4 percent increase, and net sales continued to grow double digit in Regional Markets and East Africa.

Currency volatility continued to hurt consumer demand in certain Latin America and Caribbean markets where sales slowed 1 percent. Performance in the region was also impacted by phasing issues which would benefit performance in the fourth quarter.

Performance in Asia Pacific dropped 5.4 percent. Net sales in South East Asia continued to be impacted by the decision to reduce inventory levels held by distributors. Meanwhile, in mainland China, net sales climbed 13 percent, driven by the recovery of Diageo's baijiu business.

As at March 31, 2015, net assets were 8.691 billion pounds, while it was 8.696 billion pounds at December 31, 2014. Net borrowings decreased 404 million pounds, primarily due to 265 million pounds net cash proceeds received from sale of Bushmills.

Ivan Menezes, CEO, said, "Our performance in the quarter reflects continued tough conditions in the emerging markets and subdued consumer demand in some developed markets...We can realise Diageo's full potential and deliver our performance ambition."

Meanwhile, peer SABMiller Plc. (SAB.L, SBMRY) said its fourth-quarter organic group net producer revenue grew 6 percent and group NPR per hectolitre was up 2 percent, on constant currency basis.

DGE.L fell 3.1 percent in early trade to 1906.5 pence.