STOCKS | Diageo Says It Is Making Progress in Challenging U.S. Spirits Market

Diageo reported that U.S. sales fell 3.7% year over year in its fiscal first quarter, covering July through September. According to Sina Finance, the company attributed the decline to continued market weakness, while CEO Dave Lewis said it had taken clear steps to improve its competitiveness in North America. U.S. spirits demand has weakened as consumers drink less for health and budget reasons, while competition has intensified and some of Diageo’s leading brands have lost market share. Sales of Don Julio tequila and Casamigos continued to fall sharply during the quarter. Diageo said packaging quality issues at Casamigos weighed on its ready-to-drink business, while Johnnie Walker, Guinness stout and Smirnoff Ice cocktails recorded sales growth in North America. Lewis called the first quarter “a small step in the right direction.” Diageo expects North American sales to decline for the full year but said its brands could regain some market share compared with last year. The company maintained its full-year guidance for broadly flat organic sales and low-single-digit operating profit growth, partly supported by a $1 billion cost-cutting plan Lewis launched this summer. North America is Diageo’s largest sales market. Declines there were offset by organic growth in Europe, the Middle East and Africa, Asia-Pacific, India and other regions. Overall organic sales rose 1.4% to $4.93 billion, beating analysts’ average forecast of a 0.4% decline to $4.805 billion. James Edward-Jones, an analyst at RBC Capital Markets, said the performance in the key U.S. market was “better than expected.” Diageo’s market value has fallen by more than half over the past five years. Weak spirits sales have also affected other producers, including the maker of Jack Daniel’s and the French group behind Absolut Vodka and Jameson.