Diageo posts higher quarterly sales despite a weak U.S. market

Diageo said Friday, November 6, that its global sales edged higher in the first quarter of its fiscal year even as business in the United States remained weak, underscoring the pressure the drinks company still faces in its biggest market.

The London-based company reported organic net sales growth of 0.6% to $4.9 billion for the quarter ended in September. The increase came despite continued declines in North America, where organic sales fell 3.6% and volume slipped 3.7%. The U.S. market accounts for about 36% of Diageo’s total sales, making the slowdown there a central issue for the company’s broader turnaround effort.

Outside North America, Diageo said every other region posted organic revenue growth. Those gains came from Latin America and the Caribbean, Asia Pacific, Europe, the Middle East and Africa, and India. The regional split helped offset weaker U.S. performance, but it did not change the company’s main challenge: reviving demand and competitiveness in a market that remains difficult for large spirits suppliers.

Several of Diageo’s biggest brands in the U.S. posted sharp declines. Don Julio tequila, Casamigos tequila and Crown Royal Canadian whisky all fell by double digits in the quarter, according to the company. Growth in Johnnie Walker partly softened that decline. Diageo Beer Co. USA was one of the stronger parts of the portfolio, with Guinness and Smirnoff Ice ready-to-drink products both recording double-digit gains.

The company also said Casamigos ready-to-drink sales were hurt by packaging issues, which it expects to resolve by the end of the year. That setback added to the pressure on a brand family that had already been losing momentum in a more competitive tequila market.

Data cited by the company pointed to broader weakness across its U.S. spirits business. In NielsenIQ-tracked off-premise channels for the 43 weeks ended October 24, Diageo’s total spirits volume fell 7.8%. Among major brands, Smirnoff vodka was down 8.5%, Crown Royal fell 9.9%, Captain Morgan rum declined 6.1%, Don Julio dropped 10.7%, Johnnie Walker fell 5.6%, Casamigos declined 11.5%, Bulleit was down 7.1%, Baileys fell 10.3% and Tanqueray declined 4.7%.

In control states through September, Diageo said its total spirits portfolio was down about 8% in volume. Johnnie Walker, Tanqueray, Captain Morgan and Bulleit were relatively more stable than the rest of the business, while Crown Royal, Smirnoff and the tequila portfolio weakened more sharply.

Chief Executive Dave Lewis said growth in the company’s other international regions was encouraging, while North America remained the biggest problem. He said Diageo was working to make its U.S. offering more competitive and described the first-quarter results as a small step in the right direction. He also pointed to broader volatility tied to geopolitical uncertainty and to the effects of the conflict in the Middle East on energy, supply and distribution.

The update is being watched closely across the beverage industry because it adds to evidence that the U.S. market remains soft for major alcohol suppliers after several years of uneven demand. The weakness is especially notable in tequila and whiskey, two categories that have played a large role in industry growth and premiumization. A sustained slowdown in those segments could affect producers, wholesalers and retailers that have relied on them to support revenue.

Diageo remains the largest spirits marketer in the U.S. by value and ranks second by volume behind Sazerac, with 38 million cases, according to Impact Databank. That scale means changes in its performance can offer a broad signal about conditions in the American spirits market, especially in large national brands sold through grocery, liquor and convenience channels.

For the full fiscal year ending in June, Diageo kept its outlook unchanged. The company said it still expects sales to be roughly flat and organic operating profit to rise by a low single-digit rate. The forecast suggests management does not expect a quick rebound in the U.S., even as it continues a wider turnaround plan laid out in August.

As part of that effort, Diageo has also reshaped leadership in North America. Since August, the company has named former AB InBev and PepsiCo executive Sebnem Erim as chief marketing officer and brought in former Kraft Heinz executive Cory Onell as chief customer officer. Those appointments signal that Diageo is trying to reset its commercial strategy in a market where pricing, brand positioning and execution have become more important as growth has slowed.