Diageo CEO gets quarterly sales boost in first stage of turnaround

Diageo posted an unexpected rise in first-quarter sales on Thursday as an improvement in its struggling US business injected some early momentum ‌into CEO Dave Lewis' closely watched plan to turn around the world's top spirits maker.

Lewis, nicknamed "Drastic Dave" for his cost-cutting measures at Tesco and Unilever, joined Diageo in January and has moved to overhaul the company and revive growth after years of weak demand, especially in the US ‌where it has also been losing market share. Shares in the leading spirits maker by market value rose 3.5% after it posted organic ‌net sales growth of 0.6% for the three months ended September 30, compared with a 0.4% decline expected by analysts in a company-compiled poll.

Organic net sales declined 3.6% in North America, its largest market, but that was less than the 6.7% drop expected by analysts. The company cited growth in Guinness beer and Johnnie Walker whisky ⁠and "shipment phasing". The ​results "represent a small step in ⁠the right direction," Lewis said in a statement, adding, however, that the market remains tough and ongoing conflict and geopolitical turbulence are driving volatility.

North America remained the group's ⁠biggest challenge, Lewis said. Diageo does not expect to revive growth there for years, even as Lewis moves to lower prices on certain products, revive ailing brands like ​Smirnoff vodka and shift into fast-growth canned cocktails.

Analysts said on Thursday that the better-than-expected performance in its North America business unit ⁠was driven by the timing of shipments rather than these initiatives, with its Don Julio and Casamigos tequila brands and Crown Royal whisky enduring double-digit declines. James Edwardes Jones, analyst ⁠at ​RBC Capital Markets, added that Diageo saw around 2% price deflation in Europe, the Middle East and Africa, Latin America and Asia Pacific, as it moved to cut prices to better cater to cash-strapped drinkers — a shift Lewis has pledged will not sacrifice profits.

The ⁠CEO has also cut thousands of jobs and promised to save $1 billion over three years. His plans have boosted optimism after years ⁠of turbulence, helping shares, though ⁠these remain well below levels seen in 2022. Diageo has also moved to sell assets, including its majority stake in Kenyan unit East African Breweries to Japan's Asahi Holdings. Including EABL, Diageo's group sales rose 1.4%.