Diageo reports lower than expected sales

Diageo saw its overall revenue fall flat in the first half, with the continued slowdown in China, Russia and North America hampering the company’s efforts to make a return to growth.

Diageo CEO Ivan Menezes

Releasing its interim results for the six month ending 31 December this morning, Diageo said organic net sales dropped 0.1% to £5.9 billion, below analysts estimate of £6bn.

Volume improved slightly declining -1.9%, up from -3.5% in Q1.

Three of its biggest brands, Johnnie Walker whisky, Smirnoff vodka and Captain Morgan, posted sales declines of 12%, 3% and 4% respectively.

Overall sales of Scotch, which represents 26% of Diageo net sales, declined 6%, mostly driven by the weak performance of Johnnie Walker. However the company said decline had been “partly offset” by growth of Buchanan’s in the United States and Haig Club and Singleton.

Guinness and Baileys also saw sales decline by 4 and 5% respectively, however the group’s Tanqueray gin brand bucked the trend achieving a net sales increase of 12%.

In the US, Cîroc Pineapple and Crown Royal Regal Apple boosted Diageo’s overall growth in the vodka and North American whiskey categories, up 6% and 3% in this region, signalling strength of its flavoured spirit category.

Diageo noted that sales in Russia and Eastern Europe had been “severely impacted by the economic and political events” reporting a decline in net sales of 12%. Scotch was hardest hit declining by 17%.

Despite a lack of growth, there was an improving trend in he second quarter with a dip in sales of 1.5% in the first quarter to a rise of 0.7% in the second.

Despite difficulties faced, Ivan Menezes, chief executive of Diageo, said the company had delivered the planned savings from its global efficiency programme and had been able to reinvest in its brands.

He said: “We have already taken action to improve the performance of those brands and markets that have not performed as well as we would expect. This contributed to our stronger second quarter performance and I expect to maintain this momentum through the year. The half saw Diageo acquire control of USL, putting us in the position to create an iconic leader in spirits in an attractive market. We have also reached agreement to acquire all of Don Julio, which will significantly strengthen our position in one of our fastest growing categories.”