By Peter Evans
LONDON-- Diageo PLC said it was yet to feel any benefit from the
improving U.S. economy as demand cooled for many of its major
liquor brands across the world and first-half profit fell.
Sales of Johnnie Walker Scotch whisky, Smirnoff vodka and
Captain Morgan rum--Diageo's three biggest brands--posted global
declines in the six months ended Dec. 31. Scotch, which makes up
more than a quarter of Diageo's total sales, fell 6%. The company
said challenging conditions in China were partly to blame.
In North America, by some distance Diageo's biggest and most
profitable region, sales declined 2% in the period.
"We're not seeing the benefit yet from the positive macro
environment in the U.S., including the fall in gas prices," Deirdre
Mahlan, Diageo's chief financial officer, said Thursday. "When the
consumer does come back, we will benefit from that."
Diageo, the world's biggest liquor company by sales, flagged a
slowdown in the U.S. spirits industry just before Christmas and has
admitted Smirnoff has struggled in the past year. The brand makes
up around 25% of Diageo's $5.22 billion in annual North American
sales but has been hit by price competition and signs that
Americans are falling out of love with flavored vodka.
Ms. Mahlan added that some former vodka drinkers were now
choosing bourbon whiskey instead. Diageo has invested heavily in
expanding Bulleit, its one major bourbon brand, and sales are
expected to top a million 9-liter cases in 2015. But that is still
dwarfed by Beam Suntory Inc.'s Jim Beam, which sells nearly seven
million cases a year.
Overall, Diageo said first-half net profit decreased 18% to
GBP1.31 billion ($1.97 billion), compared with GBP1.60 billion in
the year-ago period. Revenue was about flat at GBP5.9 billion. As
in previous periods, Diageo said currency devaluations in emerging
markets ate into sales.
Chief Executive Ivan Menezes is in the middle of a cost-cutting
program designed to save GBP200 million a year.
The main focus is areas such as logistics, information
technology and supply-chain management, but the company appears to
have targeted other budgets as well. Diageo's first-half marketing
spending fell 1% to GBP896 million, drawing criticism from some
analysts.
"Diageo has underinvested in its brands over a number of years
and needs a prolonged period of investment to restore brand
equity," said James Edwardes Jones, an analyst at RBC Capital
Markets.
Write to Peter Evans at peter.evans@wsj.com
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