Diageo’s Share Price: Stock Falling Despite Soaring Revenues

on Jul 31, 2013

iNVEZZ.COM Wednesday, July 31st: Results below target and expectations for this year’s performance pushed the price on Diageo’s (NYSE:DEO) shares down today. Nevertheless, there has been a significant rise in revenues and sales, making last year a successful one for the world’s biggest distiller.

A significant role in the year’s business performance has been the contribution by emerging markets with net sales growth of 11 percent and a 42 percent contribution to the overall performance of the group. However, political tensions and restrictions are hampering sales growth, which was 15 percent last year, in parts of South America and the Asia-Pacific Region.

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Deirdre Mahlan, the CFO, expressed concerns today on the “relatively soft” year in Brazil and the weak expectations for the next period in China due to government restrictions. Their regulators have adopted policies against extravagant spending and gifting, thus reducing the demand for Diageo’s premium drinks. Moreover, travel in the region has decreased due to the tensions with South Korea, airport duty free purchases forming a significant contribution to overall sales. Other large companies are also warning against slowing trends in large markets like India and China.

**Diageo’s Cash Cow**
Their most profitable industry remains scotch, represented by Johnny Walker, which is now a £20 million a year brand. Profits were boosted by increased demand for expensive spirits like Crown Royal and Bulleit bourbon in the US, compensating for the relatively lower demand in Western Europe and emerging markets. Around one-third of the business’ revenues come from North America, where organic sales increased 5 percent, compared to 6 percent for the previous financial year.

The stable results are backed by the company’s careful watch over cost of production and overheads and the general increase in prices throughout the world.
The group’s new CEO, Ivan Menezes, commented on the effectiveness of the marketing efforts and the competitive advantage they have given the company in markets throughout the world.
**Sticking to the Medium-Term Strategy**

!m[High Expectations and Previous-Period Results Push Share Price Down](/uploads/story/4477/thumbs/pic1_inline.jpg)
Mr. Menezes is expected to continue the policy of his predecessor, Paul Walsh, by acquiring more local businesses, in order to penetrate more effectively and deeply in emerging markets. His aim is to balance their share of sales with traditional markets by 2015.
According to Menezes, the 28 percent increase in earnings after taxation reflects the strengths of the company. The Board of Directors announced that a 47.4 pence dividend per share is expected, which are additional 9% gains for shareholders compared to last year.
**Diageo’s share price was $121.52 as of 31.07.2013, 13.45 BST.**


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