Diageo sales up 9% in Q1 as shares rocket

DIAGEO, the world’s biggest spirits group, beat forecasts with a 9% rise in underlying first-quarter sales led by Latin America and expects further growth in its first half, sending shares to a record high.

The British maker of Smirnoff vodka, Captain Morgan rum and Guinness said that although it was alert to any impact from the fragile global economy, trading in its July to September first quarter was marginally ahead of its expectations.

The quarterly sales rise compared with forecast growth of 5.9% in a Reuters poll, and was reported in a trading update ahead of its annual general meeting.

Diageo chief executive Paul Walsh said the group saw very strong growth of 20% in emerging markets, improving growth in Europe and better pricing in north America.

“Diageo has delivered a good start to the new financial year. Net sales growth was marginally ahead of expectations and the quarter did benefit from some one-off factors which are not expected to [recur] in the second quarter,” Mr Walsh added.

The two major one-off impacts came in Spain and Venezuela, which improved strongly from the same period last year when the former suffered from heavy de-stocking and the latter from a currency crisis.

Analysts estimate that stripping out these one-offs meant underlying growth was around 7%, while there were some key positives like a return to growth in western Europe and strong growth in Latin America.

“These results represent a very encouraging start to the year and a good underwriting of existing estimates,” said analyst Michael Bleakley at house brokers Credit Suisse.

Diageo said its Latin America and Caribbean region saw underlying quarterly sales rise 30%, followed by Asia Pacific up 14%, Africa 9%, Europe 6%, and North America 5%.

Analysts said growth in Europe was the best since Diageo started disclosing regional sales numbers in 2005 and was led by 10%-plus growth in Russia, Eastern Europe, Germany, the Nordic markets and Spain.

The London-based group is expanding into fast-growing emerging markets with recent deals in China and Turkey and expects half its turnover to come from these markets by 2015 from around 35% currently.

In August, the company set new targets to grow underlying annual sales 6%, improve margins and see double-digit percentage earnings growth in the medium term.