Diageo share price rises after Q1 trading update

on Oct 16, 2014
Updated: Oct 21, 2019

iNVEZZ.com, Thursday, October 16: Shares in Diageo (LON:DGE) opened around two percent higher this morning after the world’s largest distiller issued an interim management statement for the three months ended September 30 – the group’s fiscal first quarter.

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Diageo reported a decline in revenues for the period. They were hit by a significant fall in volume due to weaker trading in emerging markets, and de-stocking issues in some of its key markets.
With volumes down 3.5 percent, Diageo’s organic net sales fell 1.5 percent in the quarter. The results were in the middle of market expectations of between one and two percent. The Johnnie Walker whisky and Smirnoff vodka maker posted a three percent rise in organic net sales in the year-earlier period.

On a reported basis, net sales had declined 1.7 percent in the three months to the end of September, partly due to the devaluation of the Venezuelan bolivar, Diageo revealed.
The FTSE 100-listed company noted that a number of factors were at play in driving negative growth, including de-stocking in Latin America and South East Asia, a downturn in the US and a prolonged weakness in emerging markets.

“Emerging markets’ performance remains weak with further currency weakness in a few markets and specific geopolitical situations in some areas,” CEO Ivan Menezes stated.
In North America, organic net sales were up 0.1 percent and in Europe down 1.4 percent. In Latin America and the Caribbean, sales were down 1.4 percent. The biggest decline was in Asia Pacific, where organic net sales fell 7.4 percent. In Africa, revenues had been flat, Diageo said.

Despite the poor first-quarter performance, Menezes was bullish on Diageo’s full-year results. “We expect full year top line growth to improve on last year’s performance. Our focus on our six performance drivers continues to build our capabilities and deliver the cultural change I want to see across the business. I am confident we are on the road to realise our full potential,” he said.

The company further revealed that it expected currency moves to wipe around £95 million off its operating profit for the year ending June 30, 2015, with a “hyperinflation charge” of around £50 million.
**Diageo share price up as Chinese sales decline moderates**
Diageo shares are down almost 15 percent in the year to date as the company has struggled to maintain top-line growth. This morning, the shares gained as much as 3.5 percent to 1,770p, the steepest intraday advance since July 2013. By 09:35 BST, the stock had given back some of the gains, trading 0.95 percent higher at 1,724.50p.
According to some analysts, a moderated decline in China helped mask the steeper overall fall in the group’s sales. Revenues in the world’s second-largest economy were down about 20 percent — an improvement on the previous year.

“Going forward, we expect Asia Pacific to be down, but not to the same extent,” James Edwardes Jones, an analyst at RBC Capital Markets, said, as quoted by Bloomberg. “There is a good chance that this should be the worst quarter in terms of organic sales growth for the year.”
Keith Bowman, equity analyst at Hargreaves Lansdown, remarked: “In all, Diageo remains a core long-term investment. Its portfolio of spirit brands is strong, significant geographical diversity is enjoyed, whilst the group’s dividend policy remains progressive.”
Of the 21 analysts projecting 12 month price targets for Diageo for the Financial Times, the median target is 1,980.00p, with a high estimate of 2,400.00p and a low of 1,500.00p.
According to the FT, as of 10 October 2014 the consensus forecast amongst 48 polled investment analysts covering the FTSE 100-listed spirits maker has it that investors should hold their position in the company.
**As of 09:27 BST, buy Diageo shares at 1,723.00p.**
**As of 09:27 BST, sell Diageo shares at 1,722.50p.**


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