Diageo sales flatline following Jose Cuervo loss

Diageo’s termination of its distribution agreement with Jose Cuervo has resulted in flat sales for the drinks group so far this year.

Ivan Menezes, CEO of Diageo, also expects low single digit growth for the drinks giant’s full year financial results

Having dropped Jose Cuervo from its distribution portfolio in June 2013, after the two companies failed to agree on a takeover deal, Diageo has failed to see any growth in reported net sales for the first quarter of its 2013/14 financial year.

Outlining its financial results for the period to 30 September 2013, Diageo did see slight volume growth of 0.6% with organic net sales up 3.1%.

The majority of organic sales growth came from Latin America and Caribbean, which grew 10.9% in the quarter, while a strong performance of the group’s Cîroc, Crown Royal and Ketel One brands contributed to 5.1% growth in North America.

Some restocking in France failed to bolster the performance in Western Europe, where underlying trends remained unchanged and saw sales decline 1.1%.

The story was also bleak in Asia Pacific where organic sales grew just 0.6%, impacted by the Chinese government’s crackdown on opulent purchases that led to a “substantial fall” in net sales for Diageo’s baijiu business Sichuan Chengdu Shuijingfang Group Company (SJF Holdco).

Despite several challenges in various markets, Ivan Menezes, CEO of Diageo, remained optimistic about the year ahead.

“Our performance in the quarter was good given weakness in some markets,” he noted. The strength of our biggest business, US spirits, underpinned our performance. Our business in Western Europe performed in line with the slightly improving trends we saw in Q4 of F13, although I still expect a low single digit net sales decline for the full year.

“While there are headwinds in some emerging markets, including the impact of the government policies in China, there are also markets in which we continue to deliver robust growth and Diageo’s strength is the diversity of our geographic breadth and broad category reach.

“We continue to make this strong business stronger and we remain committed to delivery of our medium term guidance.”

Diaego reported an overall net sales growth of 6.2% (5% organic) in its 2012/13 full-year financial results to £11.4bn, published in July.