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Diageo Plc, the world's biggest distiller, said today it sees some 'soft spots' in emerging markets and reported full-year sales growth at a slower pace than its mid-term goal.
Trading in Brazil was 'relatively soft' in the year-ended June 30 and could continue to be weak in the first half of this fiscal year, Chief Financial Officer Deirdre Mahlan said today on a conference call. The distiller also reported slower growth in its Asia Pacific region, where government anti-extravagance measures are restraining sales in China. The Johnnie Walker maker has been expanding in developing markets as it seeks to generate half its revenues from faster-growing economies to offset stagnant growth in Europe. It bought cachaca (liquor made from fermented sugarcane juice) brand Ypioca last year in Brazil and this year expanded in India with the purchase of a stake in USL, and consolidated control over a maker of Chinese baijiu liquor.
Organic sales in Asia Pacific edged up 3 per cent in the year, slower than the 4 per cent reported in the first nine months. The government-led crackdowns on extravagant spending and gifting in China are stinting sales of premium drinks, Mahlan said, and political tensions between South Korea and North Korea cut travel retail sales.
Diageo shares rose 0.5 per cent to 1,999 pence at 9.20 am in London, bringing the advance to 12 per cent this year. Group organic sales rose 5 per cent, the London-based maker of Smirnoff vodka and Johnnie Walker Scotch whisky said in a statement. The median estimate of 12 analysts surveyed was for a 4.7 per cent increase. Organic measures exclude the effects of acquisitions and currency fluctuation.
Sales increased 5 per cent and operating profit excluding some items rose 9 per cent in North America, the company's biggest region, aided by sales of Crown Royal and Bulleit bourbon in the US. That helped offset a 4 per cent sales decline in Western Europe and a 7 per cent slump in profit due to tough economic conditions in southern Europe and Ireland. In August 2011, Diageo said, it would target organic sales growth of an average 6 per cent in 'medium term' as well as seeking to widen its operating margin by 2 percentage points over three years.
Operating profit excluding some items totalled 3.53 billion pounds ($5.38 billion), compared with a 3.48 billion pound median estimate. Diageo's margin, a measure of profitability, rose 0.8 of a percentage point this year.
"We see the organic margin delivery as very achievable," Melissa Earlam, an analyst at UBS AG in London, wrote today in a note. "But it's somewhat more challenging to get a 6 per cent compound annual growth rate sales increase."
Emerging Markets
Emerging markets' sales now total 42 per cent of the company's business, Diageo said, and grew 11 per cent in the year. Sales grew 10 percent in Africa, Eastern Europe and Turkey and 15 per cent in Latin America and the Caribbean. Revenue in Paraguay, Uruguay and Brazil climbed 1 percent, the smallest advance in the Latin America region.
Some consumer-goods companies have warned of a deceleration in emerging market economic growth. Unilever reported quarterly sales last week that missed estimates and said growth is slowing in economies such as India and China.
