Diageo's Q1 Sales Up Y/Y - Analyst Blog


On Oct 17, 2013, Diageo plc ( DEO ) reported interim management statement for the first quarter of fiscal 2014 ended Sep 30, 2013. On a reported basis, net revenue (i.e. total revenue minus excise duties) remained flat year over year. Also, on an organic basis, revenues increased 3.1% and volume rose 0.6% from the year-ago period backed by decent sales in almost all geographical regions.

Segment Details

Diageo started reporting Africa, Eastern Europe and Turkey as a new geographical segment from fiscal 2013. The reportable segments are North America, Western Europe, Africa, Eastern Europe and Turkey, Latin America and the Caribbean and Asia Pacific region.

Except Western Europe, all the regions delivered positive organic sales growth.

In Western Europe , Diageo's organic sales declined 1.1% in the first three months of fiscal 2014, due to challenging macroeconomic conditions. However, the region benefited partially from some restocking in France.

In North American region, organic sales climbed 5.1% backed by strong business in the U.S. spirits business. Strong performance of brands like Cîroc, Crown Royal and Ketel One vodka also contributed to the sales of the region.

In Africa, Eastern Europe and Turkey , organic sales increased 1.3% during the period. Net sales growth of 5% in Africa was partially offset by decline in Russia.

The Latin America and Caribbean region delivered a strong performance in the year, with organic sales growth of 11%. Sales growth, however, was partially offset by currency weakness in Columbia and unfavorable government policies in China, which led to a substantial fall in sales in the Chinese white spirit subsidiary.

In the Asia Pacific region, sales inched up 0.6% organically. Sales growth in the region was backed by improvement in Korea and India and strong performance of super and ultra-premium scotch brands in China.

During the quarter, Diageo increased its ownership in United Spirits Limited by a further 14.98% for a cash consideration of £344.2 million. This acquisition takes Diageo another step toward its goal of acquiring 27.4% ownership in this leading spirit company of India.

In Nov 2012, Diageo and United Spirits Ltd. announced an agreement under which Diageo acquired a 53.4% stake in the latter for £1.285 billion ($2.05 billion). This allowed Diageo to gain a foothold in the fast-growing alcohol market in India.

The company is increasing marketing investment in all the geographical segments, and is focusing more on its premium brands. The strategy of transitioning to high-margin high-priced products is helping the company improve its margins.

Currently, Diageo plc carries a Zacks Rank #2 (Buy). Other stocks that the investors might consider include Boston Beer Company Inc. ( SAM ), Truett Hurst Inc. ( THST ) and Constellation Brands Inc. ( STZ ). While Constellation Brands carries a Zacks Rank #1 (Strong Buy), Boston Beer and Truett Hurst carry a Zacks Rank #2.

DIAGEO PLC-ADR (DEO): Free Stock Analysis Report

BOSTON BEER INC (SAM): Free Stock Analysis Report

CONSTELLATN BRD (STZ): Free Stock Analysis Report

TRUETT-HURST (THST): Get Free Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: DEO , SAM , STZ , THST



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