By Yadarisa Shabong and Emma Rumney
May 6 (Reuters) – Diageo beat third-quarter sales forecasts on Wednesday, despite further weakness in North America that new CEO Dave Lewis said would be his biggest challenge to reviving growth at the world’s top spirits maker.
The Johnnie Walker whisky maker posted 0.3% organic growth in net sales, confounding forecasts for a 2.3% drop, helped by strong Guinness demand in Britain and Ireland and stocking up in Latin America and the Caribbean ahead of the soccer World Cup.
The surprise beat gives Lewis an early boost. Shares in the British group were 5% higher at 0919 GMT.
But performance in the U.S., Diageo’s biggest market, remained a drag, with North American sales down 9.4%.
Lewis said actions are underway to address this problem, which he described as the company’s “biggest challenge”. These include cutting prices of some tequila brands like Casamigos.
He also told investors that the company had undertaken “fundamental” work to address competitiveness around the world. Lewis will lay out his strategy in full in August.
“We’ve been able to make interventions in parts of the group and see responses quite quickly,” he said, though fixing North America would take longer.
LEWIS TO LAY OUT STRATEGY IN AUGUST
Lewis’ appointment has raised hopes of a turnaround after years of flat or falling sales and mounting investor frustration under predecessor Debra Crew.
Nicknamed “Drastic Dave” for aggressive cost-cutting at Tesco and Unilever, Lewis has moved quickly at Diageo, cutting its sales forecast and halving the interim dividend in February.
Diageo’s third-quarter performance lends some support to Lewis’ claim that steps are being taken to address North America, RBC Capital analyst James Edwardes Jones said in a note.
However, he added: “Given the importance of the U.S. to Diageo, it would be flippant to argue that things are on the mend yet.”
DIAGEO BRUSHES OFF IRAN WAR THREAT
Demand for spirits globally has dropped due to soaring costs of living and shifting drinking habits.
Now, the Iran war threatens to place further pressure on drinkers’ wallets and drive up costs for inputs like glass bottles.
Diageo maintained its annual forecasts, but said it was mindful of the impact of the Middle East conflict on energy, supply and distribution.
Finance chief Nik Jhangiani said the company could build up inventory or accelerate shipments to deal with challenges if necessary.
(Reporting by Yadarisa Shabong in Bengaluru. Editing by Elaine Hardcastle and Mark Potter)
Comments