April 18, 2013 9:39 am

Diageo shares dip as growth disappoints

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Diageo, the world’s largest distiller, reported weaker-than-expected third-quarter sales growth on Thursday amid challenging trading in South Korea, Nigeria and Brazil.

Shares in the FTSE 100 group, whose brands include Smirnoff vodka, Johnnie Walker whisky and Captain Morgan rum, fell 2 per cent to £19.43 in early morning trading in London.

It said sales in the three months to March 31 were 4 per cent higher than the same period a year earlier on an “organic” basis that strips out the effect of acquisitions.

For the first nine months of its financial year, meanwhile, the organic sales growth figure was 5 per cent, in line with its performance in the first half of the year.

An increase in the price of drinks sold more than made up for a slight dip in sales volumes during the third quarter.

Diageo’s South Korean arm was affected by the decline of the local Scotch whisky market. Diageo said trading in Nigeria had weakened slightly, as anticipated, while its Brazilian arm was hit by “consumer weakness”.

This was offset by the strong performance of its US business. However, analysts had expected organic sales growth of 5 per cent for the three-month period.

Martin Deboo, an analyst at Investec Securities who has a “hold” recommendation on Diageo shares, played down the significance of the weaker-than-expected sales. “Under the hood, the story still looks decent to us,” he said.

Including acquisitions – such as the 2012 purchase of Shui Jing Fang, a maker of the popular Chinese spirit baijiu – Diageo’s third-quarter sales were up 7 per cent year-on-year.

Elsewhere in the drinks sector, shares in SABMiller, the brewer, fell 1 per cent to £33.12 even though it posted a 4 per cent year-on-year rise in lager volumes in the three months to March 31, better than the 2.5 per cent average analyst forecast gathered by Bloomberg.

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