Diageo expects to return to organic sales growth this year

The world’s number one drinks company, Diageo, has had an increasingly tough time in North America, its largest and most profitable region. Consumer tastes in the U.S. have shifted toward smaller “craft” brands – and away from Diageo’s core brands like Smirnoff vodka, Captain Morgan rum, and Johnnie Walker whisky.

This trend continued in Diageo’s latest fiscal year, ended 30 June 2015. Diageo’s organic sales in North America fell 1 percent, with sales volumes down 3 percent. Operating profits in the region, where Diageo makes 40 percent of its profits, dropped 2 percent.

But despite the decline of its mass-market brands, the company has managed to capture some of the shift: sales of Bourbon and premium Scotch whisky brands have shown some growth.

The drinks company insists that the problems of the past two years, when it showed no organic sales growth and revenues remained flat at GBP 10.8 billion (USD 16.7 billion), are now behind it.

Diageo made this claim at its full-year results on 30 July 2015, with bosses saying next year will bring a return to organic growth, with big pushes in South Africa, India and the United States.

First of all, however, Diageo will need to deal with an inquiry by the U.S. stock market watchdog, the Securities and Exchange Commission (SEC) over allegations of “channel stuffing”, i.e. pumping distributors with excess stock to boost sales, only to withdraw the stock later. Diageo confirmed it received an inquiry from the SEC and was responding to its questions, but it was unclear if a full-scale investigation will follow.

“We understand that the SEC often makes requests for information like this, which does not lead to any further action,” the Nomura analyst Ian Shackleton wrote in a note.