Diageo plc’s DEO third-quarter fiscal 2015 net revenue (i.e. total revenue minus excise duties) declined 0.7% year over year. Volume declined 0.8% from the year-ago period due to negative currency translation which lowered the top line in most of the geographical regions.
Segment Details
In North America, Diageo’s organic sales increased 0.9% due to a slowdown in the U.S. spirits market due to weaker pricing. Strong performance of the Crown Royal Regal Apple and Smirnoff Red’s brands was offset by weakness in Captain Morgan.
In Europe, organic sales decreased 1.3% mainly due to decline of sales in Great Britain. The decline reflects inequality in previous year’s comparisons. In fiscal 2014, consumers made higher purchases during the third quarter in anticipation of a duty increase.
In Africa, organic sales increased 8.2% backed by strong growth in Africa Regional and East African markets. Improved performance in Nigeria backed by strong performance of brands like Orijin and Guinness led to the double-digit growth.
Latin America and Caribbean’s organic sales declined 10.2% due to currency volatility which negatively affected consumer demand and inventory levels held by consumers.
In the Asia Pacific region, sales declined 6% mainly due to the decision to reduce inventory levels held by distributors. Moreover, political tensions and the company’s decision of not reducing prices in the Middle East resulted in sales decline in the region.
Management expects unfavorable currency translations to negatively impact net sales and operating profit by $352.8 million and $161.7 million, respectively, for fiscal 2015. (The company assumes current exchange rates of £1 = $1.47 for the year ending Jun 30, 2015.)
Currently, Diageo carries a Zacks Rank #3 (Hold). Investors interested in the beverage sector may consider Monster Beverage Corp. MNST sporting a Zacks Rank #1 (Strong Buy) and Cott Corp. COT with a Zacks Rank #2 (Buy). Another stock in the consumer staples sector worth considering is Tyson Foods Inc. TSN with Zacks Rank #2.
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