Diageo sales fall as leadership uncertainties unsettle investors
Diageo has reported disappointing first-quarter sales. The update comes as investors await clarity from chairman Sir John Manzoni on the company’s vacant chief executive role.
The world’s biggest premium beverage alcohol group has today issued a downbeat report on its first quarter sales for the three months to the end of September.
This comes in advance of the annual general meeting today but has not been accompanied, as investors will have hoped, by any information from chairman Sir John Manzoni about a permanent successor to former chief executive Debra Crew who left the company abruptly “by mutual consent” in July.
Leadership uncertainty continues
The company had said that it expected to announce her replacement by the end of October but Nik Jhangiani, in whose name the quarterly figures were issued, remains billed as Interim Chief Executive.
Diageo warned that growth in both its sales and profits will be lower in the full year than previously forecast due to the continuing softness of the key markets in the United States and China.
The weak numbers and lack of clarity on the leadership role sent the shares down by a further 4.6% to £17.13 in London this morning. Four years ago they stood at more than £40.
Profit slowdown
Diageo expects organic sales growth for the full year to the end of next June to be “flat to slightly down” and that organic profit growth would slow to low to mid-single digits.
Net sales in the first quarter were 2.2% lower than in the same period last year at US$4.9bn. However organic net sales were flat, with organic volume growth of 2.9% offset by negative price/mix of 2.8%.
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Jhangiani said: “We are not satisfied with our current performance and are focused on what we can manage and control; acting with speed to drive efficiencies, prioritising investment and adapting more quickly to an evolving consumer environment.”
Asset sales
He said the group had made “good progress” in driving efficiency and that it was on track to save US$625 million within three years.
He said there had been no change to the group’s estimate on the effect of US tariffs, which had been put at US$200 million but it was hoped that the hit could be mitigated to US$100 million.
There was no news on drink disposals although United Spirits, Diageo’s India subsidiary, confirmed yesterday that it was reviewing its ownership of the Royal Challengers Bangalore cricket team, which media reports have valued at up to US$2 billion.
“Royal Challengers Sports Pvt Ltd ‘has been a valuable and strategic asset’ but is ‘non-core’ to United Spirits’ alcohol business”, CEO Praveen Someshwar said in a stock exchange filing.
Jhangiani said he was “pleased at the pace at this was moving”.
The review (and probable sale) is expected to be concluded before the next Indian Premier League cricket season begins next April.
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