Diageo signals turnaround after another flat year
By Martinne Geller
LONDON (Reuters) - Diageo , the world's largest spirits company, signalled a turnaround this year, following two years of flat sales due to issues including wholesaler destocking and discounting in vodka.
The London-based maker of Johnnie Walker whisky, Smirnoff vodka and Guinness beer on Thursday said organic net sales growth for the full year ended 30 June was flat, as it was the previous year. Analysts on average were expecting growth of 0.2 percent, according to a consensus provided by the company.
Earnings per share before one-time items fell to 88.8 pence, from 95.5 pence a year earlier. That was below analysts' average estimate of 90.3 pence. The company blamed currency fluctuations.
Diageo has suffered from a range of problems, both external and self-inflicted. Sales have been hurt by a government crackdown on gift-giving in China and slowing economies in other emerging markets where it recently made acquisitions, but also aggressive discounting on vodka in the United States and a relatively small exposure to red-hot American whiskey.
Yet Diageo says things are turning around, due to efforts to shift the focus of its business, away from what it sells to wholesalers towards what they in turn sell to retailers.
Wholesalers in several regions have been buying less in an effort to operate with slimmer inventories. The practice, known as destocking, hurts Diageo's sales in the short term but long-term, should help it respond more quickly to consumer trends and have a more efficient supply chain.
"We see 2016 as a transition year," Chief Financial Officer Deirdre Mahlan told reporters, saying Diageo expects sales to grow this year, but not yet at the mid-single-digit level it forecast for the three years starting from fiscal 2017.
Over those three years, its operating margin should expand by 100 basis points, Diageo said, as productivity gains are expected to free up a further 500 million pounds.
"The guidance is notably upbeat," said RBC Capital Markets analyst James Edwardes Jones, adding: "Given Diageo's recent performance, we remain to be convinced as to the achievability of this guidance."
Diageo shares were down 0.2 percent at 0740 GMT (0840 BST) in London.
(Editing by David Clarke and Dale Hudson)
