The Diageo drinks group announced today its underlying sales fell a sharper-than-expected 6 per cent in its first quarter, sending its shares lower, while it kept its annual profit target.
The maker of Guinness, Smirnoff vodka and Captain Morgan rum reported the sales decline for its July-September first quarter, compared to analyst forecasts for an average 2.3 per cent fall in sales in a Reuters poll of six brokers.
"As we anticipated consumer trends across our markets remain broadly unchanged since the year-end. Therefore net sales in the first quarter of the new financial year have been weak when compared to the strong performance of the first quarter last year," said Chief Executive Paul Walsh in a trading update. "The year has started as we thought it would and we reiterate our guidance for low single digit organic growth in operating profit in fiscal 2010," Mr Walsh added.
The London-based group cut its annual target twice in six months earlier this year as de-stocking and downtrading to cheaper products in the downturn hurt the drinks maker. Mr Walsh added that stock levels had not risen in the first quarter and in its biggest market, North America, stocks for its US spirits business were below those seen at end-June 2009.
Diageo shares dipped 4.7 per cent to an eight-week low of 930-1/2 pence, before last trading down 3.6 per cent at 941-1/2p earlier today, making the Johnnie Walker whisky and Baileys liqueur group worth around €25.5 billion
Other European spirits group shares were lower with Pernod Ricard off 3.5 percent at €53.72. It is due to report on recent trends on October 22nd.
Analysts had warned this quarter was set to be the low point for Diageo as the previous first-quarter of July-Sept 2008 saw sales rise 6 per cent before the market saw a fall in November 2008 as the slowdown worsened after the collapse of Lehman Brothers.
In its last financial year to end-June 2009, the group saw flat underlying sales and operating profit growth of 4 per cent, but has said it expected trading to stabilise in the last six months of 2009 and hoped for a real recovery in 2010. The group was giving a trading update ahead of its annual general meeting later this afternoon.
Diageo shares have underperformed the FTSE 100 index by 12 per cent and rival Pernod Ricard by 7 per cent so far this year.
Reuters