Diageo has delivered a mixed third quarter, with strong momentum across Europe, Latin America and Africa partly offsetting continued softness in North America.
Reported net sales rose 2.3% to $4.48bn, while organic growth came in at a slim 0.3%. Crucially, the drinks giant has reiterated its full-year guidance.
Is Diageo turning a corner? The 4% increase in shares after third-quarter results were released on Wednesday would suggest the market thinks that they are.
“Diageo’s Q3 trading update this morning shows tentative signs of stabilisation after a bumpy period, but the group is not out of the woods yet,” said Adam Vettese, market analyst for eToro.
“Organic net sales edged 0.3% higher in the quarter, a welcome improvement on the H1 decline. This was down to strong double-digit growth across Europe, Latin America & Caribbean and Africa, helped by Easter timing and World Cup stocking.”
But North America remains a headache and the biggest drag on growth.
Organic net sales fell 9.4%, with US Spirits down 15.4% as soft market conditions, weak mix, tough comparatives from last year’s pre-tariff distributor buy-in and a double-digit drop in tequila all weighed. CEO Sir Dave Lewis admitted the offer “needs to be more competitive”, with action already underway.
However, the softness in the US was offset by strength elsewhere in the world.
Europe provided some reason for optimism, with organic sales up 8.8%, helped by Easter timing and pre-FIFA World Cup buy-in. Guinness continued its run of form, with double-digit net sales growth in Great Britain and Ireland, while spirits posted high-single-digit growth led by Johnnie Walker in MENA and Türkiye.
Asia Pacific saw sales edge down 0.8% due to softness in Greater China, where Chinese white spirits fell double digits, a c.3% hit at the regional level, though international premium spirits and a later Chinese New Year offered some support. Guinness was a strong performer here.
Latin America and the Caribbean delivered the largest geographical gain for Diageo at 16.2% organic growth, with Brazil up double digits on volume and price, and World Cup-related buy-in giving an extra lift.
Africa rounded off a strong quarter for the international footprint, with organic sales up 17.1% on double-digit growth in East Africa and in Southern, West, and Central Africa.
On the outlook, full-year guidance is unchanged: organic net sales down 2–3%, organic operating profit flat to up low single digit, and free cash flow of around $3bn. The fact that things have not got any worse will reassure investors.
Diageo’s lowly valued shares, trading at around 12x earnings, may start to attract value investors should the stabilisation continue.