Diageo sees rebound in drinks market

City A.M. Reporter
DIAGEO beat forecasts with a big sales rebound in the first three months of the year as the recovery kicked in led by strong emerging market 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 (Jan-March) underlying sales grew 12 per cent compared with a consensus forecast of 6.5 per cent from a Reuters survey of six analysts and rival Pernod Ricard's 16 percent growth.

Diageo stuck to its full-year target to see a low single digit percentage rise in operating profits, which after a 3 percent fall in the first-half to end-December 2009 will need a rebound in its Jan-June 2010 second-half to meet the target.

Analysts said the shares were expected to start higher after beating expectations and reaffirming its annual profit target.

"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.

The shares closed on Wednesday at 10.81 pounds, almost unchanged from where they started 2010.

"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.