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Diageo third-quarter sales fall on Asian weakness

LONDON (Reuters) - Diageo reported a 1.3 percent decline in third-quarter organic net sales on Thursday, as volatility in emerging markets curbed demand for its alcoholic drinks.

The world's largest spirits company, which generates 42 percent of its sales from developing economies, said currency and economic weakness hurt consumer confidence in many markets including Russia and South Africa.

Diageo shares fell 5 percent to 1,805 pence by 0720 GMT.

In Asia, sales were hammered by political instability in Thailand and an anti-corruption crackdown on gift-giving by the Chinese government. That crackdown has been especially painful for French rival Remy Cointreau , which warned that its full-year profit would fall by as much as 40 percent.

"Our performance reflects the challenging environment we are operating in," Diageo Chief Executive Ivan Menezes said in a statement.

Still, Menezes said Diageo continues to invest in building its business in emerging markets, as it remains confident about their long-term growth opportunities.

"Current trends will however impact top line growth this financial year, but strong management of our cost base means that we remain committed to the delivery of our margin expansion goals," he said.

In the three months ended 31 March, the maker of Johnnie Walker whisky and Smirnoff vodka saw sales rise in North America, Western Europe and Latin America, but tumble 19 percent in the Asia Pacific region. Sales fell 5.2 percent in Africa, Eastern Europe and Turkey.

Overall, sales by volume fell 1 percent in the quarter.

For the fiscal year ending 30 June, Diageo said it now expects adverse currency moves to shave 330 million pounds ($554 million) from its operating profit.

(Reporting by Martinne Geller in London; Editing by Louise Ireland)