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Wall Street Journal: Sales Rise at Cautious Diageo

February 9, 2012


From The Wall Street Journal:

Diageo PLC on Thursday warned that the outlook for the global consumer economy remains uncertain this year even as the U.K.-based drinks giant reported a rise in earnings, driven by volume gains in emerging markets.

The maker of Johnnie Walker scotch, Guinness stout and Smirnoff vodka said sales increased 8% to £5.76 billion ($9.11 billion) from £5.32 billion in the six months to the end of December 2011. Net profit, however, fell 20% to £953 million from £1.19 billion, hit by an exceptional noncash write-down of £524 million on deferred tax assets.

Diageo's growth has been driven by its operations in booming economies in Africa, Asia Pacific and Latin America, where it continues to increase its spending on marketing. It expects those regions, with rising adult and middle-class populations, to contribute half of its global sales in the next three to five years as thirst for scotch, rum and other premium spirits increases.

The company's top line has benefited from selective price increases as it moves away from discounting on its products. Still, it faces sluggish trading in mature economies, particularly in Western Europe, where consumer spending is being squeezed by higher taxes, inflation pressure and rising unemployment amid the sovereign-debt crisis.

"We are cautious as to the consumer and economic trends we will face in 2012, but these first-half results have positioned us well," Chief Executive Paul Walsh said in a statement.

Operating profit before exceptional items, the figure closely watched by analysts, rose to £1.87 billion from £1.73 billion, missing a company-produced market consensus of £1.89 billion.

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For the full article, visit http://online.wsj.com.


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