Diageo shares jump as World Cup hype helps drinks giant back to sales growth
Shares in Diageo jumped on Wednesday morning as high hopes for a high-drama World Cup has helped lift the drinks firm’s sales back into positive territory.
The Guinness and Johnnie Walker maker, which has been battling a slowdown in demand for spirits, said it had seen “some benefit” of “advance sales” ahead of the start of the football tournament next month, sending net sales up 2.3 per cent to $4.5bn (£3.3bn) in the first three months of the year.
Growth in Europe jumped 8.8 per cent during the quarter, led by the Brits’ unquenchable thirst for Guinness, but this was offset by a 9.4 per cent slump in sales in the US and Canada, amid double-digit declines in sales of tequila.
“North America remains our biggest challenge, where market conditions are soft and our offer needs to be more competitive,” chief executive Dave Lewis said. “Actions are already underway to address this.”
Diageo shares rose 5.2 per cent to 1,552p in early trade on Wednesday morning. The stock remains down around three per cent since the start of the year.
Adam Vettese, market analyst for Etoro, said: “Investors haven’t had much to smile about in recent times with shares derating sharply but this mornings update has been well received.
“At current levels the valuation looks reasonable for a business with Diageo’s iconic brands and emerging market exposure, but near-term risks are still high.
“The new full strategy refresh on 6 August will be the real moment of truth with investors hoping this will be the catalyst for a sustained recovery.”
Diageo slashes dividend as Drastic Dave plots turnaround
In February, Diageo slashed its dividend as the cost-cutting regime of new chief executive ‘drastic’ Dave Lewis began to take hold, prompting a share price spook.
The board announced the “difficult” decision to cut its dividend to 20 cents to “accelerate the strengthening” of its balance sheet in its interim results, the first financial update since Sir Dave Lewis took charge.
The FTSE 100 giant, which also owns spirit brands Smirnoff and Captain Morgans, has suffered from tight margins in recent years as consumers turn to low alcohol alternatives and cheaper brands.