Drinks giant Diageo said weakness in emerging markets including China will weigh on growth this year after reporting third-quarter sales that unexpectedly tumbled.
Sales dropped 1.3 per cent, excluding acquisitions and currency shifts, in the three months through March, the Guinness makersaid today. That compares with the 1.8 per cent median estimate for growth of 11 analysts surveyed by Bloomberg.
“This is clearly a disappointing statement,” said Chris Wickham, an analyst at Oriel Securities in London. “Some of the disruption to emerging markets experienced in the first half appeared to remain in place in the third quarter.”
Diageo, which sells spirits including Johnnie Walker and Smirnoff, has made acquisitions in the past few years to expand outside its European heartland in faster-developing economies, where growth is now stumbling amid waning consumer confidence and faltering currencies.
The company offered the equivalent of $1.9 billion this week to gain control of United Spirits and expand in India, the world’s largest whiskey market.
"Our performance reflects the challenging environment we are operating in," Ivan Menezes, who became chief executive officer last year, said in the statement. "In emerging markets, currency volatility and caution about the outlook for GDP growth are negatively impacting business and consumer confidence."
The volume of goods sold in the quarter fell 1 per cent, Diageo said. Sales were hurt by slowing economies in markets such as Russia and South Africa. Southeast Asia saw “further negative impact from the political instability in Thailand and lower trade confidence across a number of markets”.
Sales of Shuijingfang baijiu drink reflected “the weaker performance in Chinese white spirits” in the final three months of 2013. China’s government is cracking down on extravagant spending on gifting and banqueting among officials, cutting sales of expensive bottles of baijiu, whisky and cognac.
Competitor Remy Cointreau SA, which makes Remy Martin cognac, said today it expects to report a decline of as much as 40 per cent in annual profit because of China’s spending restrictions, with annual cognac sales plunging 21 per cent.
Diageo said today it has recalculated sales in Venezuela to reflect “the new currency-exchange mechanism and the related reporting implications.” Venezuela last month allowed the bolivar to weaken 88 per cent on a new currency market designed to allow companies to obtain dollars in a country where shortages have stoked the world’s fastest inflation.
Consumer prices in the country rose 57.3 per cent in February.
North America, Diageo’s largest region, saw similar sales patterns in the third quarter to its first half, with revenue rising 1.2 per cent. Western Europe “continues to drive incremental improvement”, also increasing 1.2 per cent, it said.(Bloomberg)
