November 17, 2011 / 11:25 PM / 7 years ago

Diageo expects growth to remain constant despite economy

NEW YORK (Reuters) - Diageo PLC (DGE.L), the world’s largest spirits company, expects sales growth in North America to remain constant despite the challenging economy, fueled by new products and a robust holiday selling season.

The British maker of Smirnoff vodka and Captain Morgan rum said it expects sales growth in this key market to continue at its recent pace, which was 5 percent in the latest quarter and 3 percent in fiscal 2011, which ended in June.

“That range is what we see as pretty sustainable,” Diageo North America President Ivan Menezes told reporters ahead of an analyst and investor day in New York on Thursday.

In August, Diageo set new targets to grow overall underlying annual sales by 6 percent, improve margins, and see double-digit percentage earnings growth in the medium term.

“If we have a reasonable state of affairs in the economy ... those goals — whilst not being a walk in the park — are very, very doable,” Paul Walsh. the company’s CEO, said.

“We are definitely operating in a multispeed world but business is going forward,” he said.

“In Europe there are some high spots and low spots,” Walsh said, citing Germany and Russia as high spots. “We think we will probably hold our business approximately flat there in the near term.”

That would be an improvement from the 3 percent decline seen last year, Walsh said.


International sales have been fueled by faster-growing markets in Latin America, Africa and the Middle East.

The London-based group expects half of its turnover to come from emerging markets by 2015, up from around 35 percent currently. But Walsh said more emerging market acquisitions could lead the company to exceed the goal.

Diageo is seen by many on Wall Street as a likely suitor for the newly independent Beam Inc BEAM.N, which makes Jim Beam and Maker’s Mark bourbons.

When asked about the possibility, Walsh declined to comment. However, he did remark on the distribution contract Diageo has with the owners of Jose Cuervo tequila, which expires in June 2013.

“I would much prefer to have more of an equity participation than being a pure distributor ... but that’s not in my control,” Walsh said.

He said he expects to have continuous discussions with the Beckmann family owners about future options, including making the terms of the agreement more attractive.

“I think it’s fair to say that the terms and conditions of the current agreement will need some revision from our perspective,” Walsh said. “I don’t think we make enough money out of the brand.”

Diego also owns 34 percent of the Moet Hennessy drinks group and Walsh said he does not foresee any moves there.

“This is something that will not change, really, unless the owner of the 66 percent wants it to change,” Walsh said, referring to French luxury goods group LVMH (LVMH.PA).


North America represents one-third of Diageo’s overall sales and 40 percent of its profits. Diageo USA is looking at a critical season as year-end holidays typically lift sales.

Larry Schwartz, president of Diageo USA, said in an interview that this year’s holiday season should be better than last year, as consumers get used to the current environment.

Schwartz said new products such as peach-flavored Ciroc vodka will drive growth. Diageo also launched “whipped cream” and “fluffed marshmallow” flavored Smirnoff vodkas, on top of other new products like Johnnie Walker Double Black Scotch whisky and Guinness Black Lager.

“There’s no reason for me to believe that the holiday won’t be on track with what we’re projecting,” Schwartz said. “And we’re projecting right now that it will be a good holiday, a decent holiday.”

Reporting by Martinne Geller, editing by Bernard Orr

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