Diageo’s US problems temper sales boost from Guinness, World Cup

By Yadarisa Shabong and Emma Rumney

May 6 (Reuters) – Diageo beat third-quarter sales forecasts on Wednesday, despite further weakness in North America that new CEO Dave Lewis said would be his biggest challenge to reviving growth at the world’s top spirits maker.

The Johnnie Walker whisky maker posted 0.3% organic growth in net sales, confounding forecasts for a 2.3% drop, helped by strong Guinness demand in Britain and Ireland and stocking up in Latin America and the Caribbean ahead of the soccer World Cup.

The surprise beat gives Lewis an early boost. Shares in the British group rose more than 6% in early trade.

But performance in the U.S., Diageo’s biggest market, remained a drag, with North American sales down 9.4%.

“North America remains our biggest challenge, where market conditions are soft and our offer needs to be more competitive. Actions are already underway to address this,” Lewis, who took over in January, said in a statement. He gave no details.

LEWIS TO LAY OUT STRATEGY IN AUGUST

Lewis’ appointment has raised hopes of a turnaround after years of flat or falling sales and mounting investor frustration under predecessor Debra Crew.

Nicknamed “Drastic Dave” for aggressive cost‑cutting at Tesco and Unilever, Lewis has moved quickly at Diageo, cutting its sales forecast and halving the interim dividend in February.

He said on Wednesday he remained on track to set out a full strategy in August.

Diageo’s third‑quarter performance lends some support to Lewis’s claim that steps are being taken to address North America, RBC Capital analyst James Edwardes Jones said in a note.

However, he added: “Given the importance of the U.S. to Diageo, it would be flippant to argue that things are on the mend yet.”

DIAGEO BRUSHES OFF IRAN WAR THREAT

Lewis has been tasked with reducing debt and reviving growth at Diageo following a drop in demand for spirits globally due to soaring costs of living and shifting drinking habits.

Now, spirits makers face added risks from the fallout of the Iran war, which threaten to place further pressure on drinkers’ wallets and drive up costs for inputs like glass bottles.

Diageo maintained its annual forecasts, but said it was mindful of the impact of the Middle East conflict on energy, supply and distribution.

(Reporting by Yadarisa Shabong in Bengaluru. Editing by Elaine Hardcastle and Mark Potter)