Emerging markets drive Diageo sales growth

The London-based maker of Smirnoff vodka and Captain Morgan rum said it had seen signs of fragile recovery in its mature markets such as North America and a stronger one in its emerging markets of Latin America, Africa and Asia.

The drinks maker reported its third-quarter underlying sales grew 12 per cent beating a consensus forecast of 6.5 per cent.

Diageo stuck to its full-year target to see a low single digit percentage rise in operating profits, which after a three per cent fall in the first-half to end-December 2009 will need a rebound in its Jan-June 2010 second-half to meet the target.

"The recovery begins... With this double-digit sales result it appears that Diageo is well on its way to meeting its low-single-digit organic guidance target for the year," said analyst Anthony Bucalo at brokers Credit Suisse.

Its shares edged forward in a lower London market despite the maker of Baileys liqueur, Johnnie Walker whisky and Guinness beer benefiting from one-off effects such as an early Easter and a very weak comparison in the first three months of 2009.

"While we have seen some signs of recovery, albeit fragile in the mature markets and stronger in the emerging markets, our performance in the quarter benefited from comparison against a weak third quarter last year, from the earlier Easter this year and in some markets sales were brought forward in advance of excise duty increases," said chief executive Paul Walsh in the third-quarter trading statement.

Diageo and Pernod have suffered from the global downturn and big destocking in the United States in early 2009 which followed the collapse of Lehman Brothers in late 2008, but both are now looking to benefit from the first signs of recovery.

Last week, Paris-based Pernod reported its rebound in sales and upgraded its target to look for a three per cent growth in profit for its year to end-June helped by signs of recovery in all areas around the world apart from western Europe.

The French group, which markets Absolut vodka and Chivas Regal whisky, makes around 20 per cent of its profits from Asia compared to Diageo's 8 percent, giving it an advantage while Asia is leading the industry's emerging markets recovery.

Diageo had seen the early stages of a recovery in emerging markets in the final months of 2009, but saw a more sluggish performance in the mature markets of Europe and North America which earn around 70 per cent of group profits.