Diageo has reported first-half profit growth that beat estimates slightly as the world’s biggest distiller responded to weak demand in China and Southeast Asia by slashing marketing expenditure.
Earnings before interest and tax rose 0.7 per cent on a so-called organic basis in the six months ended 31 December, London-based Diageo said today. The median estimate of 16 analysts surveyed by Bloomberg News was for no change.
Diageo spent 20 per cent less marketing the Johnnie Walker whiskey brand in China as the quantity of scotch sold declined by 22 per cent. Government anti-corruption measures have curbed shipments of scotch and baijiu liquor in the country at a time when the company is also battling weakness across Europe.
“We delivered the planned savings from our global efficiency program together with procurement benefits in marketing spend,” Chief Executive Officer Ivan Menezes said in the statement, describing the second-quarter as “stronger.”Diageo fell 0.4 per cent 1,955 pence at 8:04 a.m. in London trading, trimming the stock’s gain this year to 5.8 per cent.Total spending on marketing declined by 1 per cent to 896 million pounds in the first half, the company said, led by a 15 percent drop across the Asia-Pacific region. Diageo pointed to a “significant reduction” in investment in Shui Jing Fang, its Chinese clear-spirit business.
Scotch sales in China are “challenging,” Chief Financial Officer Deirdre Mahlan said on a conference call with reporters, adding that the distiller isn’t counting on a significant upturn there. The Chinese New Year period that starts next month will be “relatively soft,” she said.
Menezes wants to offset headwinds in China with new products in the US, the world’s most profitable spirits market. The North American market is “still a bit soft,” Mahlan said today.
Diageo’s first-half organic sales fell 0.1 per cent, in line with analyst estimates and an improvement on the first-quarter’s 1.5 per cent decline. Organic measures exclude the effects of acquisitions and currency fluctuations.
Bloomberg News edited by ESM
