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Diageo third-quarter sales drop 7%

Diageo posted a 7% drop in first-quarter core sales as the global drinks giant suffered amid weakening markets in the second half of fiscal 2009, but the global drinks giant maintained its annual profit guidance. 

The drop in sales was driven, according to a company statement, by the planned stock reductions in Diageo’s US spirits and wine distributors, where stocks on 31 March 2009 was approximately one million cases lower than on 31 December 2008.

Net sales were flat in the nine months ended 31 March 2009 against the same period last year on an organic basis, while on a reported basis net sales grew by 16% in the nine months and by 11% in the quarter ended 31 March against the respective comparable period.

Net assets were valued at £4,192million as of 31 March 2009, set against £4,616m on 31 December 2008.

The company pointed to struggles in the travel retail and Russian markets as having a strong bearing on recent activity.

Paul Walsh, Diageo chief executive, said: “As we anticipated, trading in markets around the world has weakened in the second half of the fiscal year.

“In particular there has been a significant decline in the Russian market from the beginning of January and the Global Travel Retail business continues to be adversely affected by the economic conditions.

“However, through our actions, including the reduction in trade stock levels which we orchestrated across many markets in the first half and delivered in our US spirits and wine channel in the third quarter, our focus on marketing efficiency and the implementation of our restructuring programme, we are taking the steps necessary to put ourselves in a position to emerge from this global downturn as an even stronger business.

“Despite this more challenging trading environment we continue to forecast organic operating profit growth for the year ended 30 June 2009 in the range of 4% to 6%.

“Continued positive exchange rate impacts and the lower tax rate mean that growth in reported eps will be double digit.”

Alan Lodge, 07.05.2009 

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