DEO.US (DEO.US) organic sales unexpectedly increased by 1.4% in Q1: the 3.6% decline in North America became a drag, maintaining the same level guidance throughout the year

The Zhitong Finance App learned that before the US stock market on November 5, the world's largest spirits manufacturer, DEO.US (DEO.US), announced the results for the first quarter of the 2027 fiscal year. Financial reports showed that its Q1 net sales were US$4.931 billion, up 1.2% year over year; organic net sales increased 1.4% year over year, breaking analysts' previous expectations for a decline.

Organic sales increased 1.1%, and the price and product structure contributed 0.3 percentage points; excluding East African Breweries (EABL), which had already been contracted for sale, organic net sales increased by only 0.6%, and sales decreased by 0.1%.

Looking at the subregions, Latin America and the Caribbean grew organically by 4.8%, the Asia-Pacific region grew by 4.1%, India grew by 3.4%, and Europe, the Middle East, and Africa combined grew by 2.4%, mainly driven by Turkey, Africa, and the Middle East. Italy and France showed weak performance.

North America remained the biggest drag, with net organic sales falling 3.6% and sales volume falling 3.7%, with the US falling 3.7%. Tequila brands Don Julio (Don Julio), Casamigos (Casamigos), and Crown Royal (Crown Royal) all declined in double digits, only partially offset by the growth of Johnnie Walker (Johnnie Walker); the company said that Casamigos packaging quality issues dragged down the performance of ready-to-drink spirits products. At the category level, whiskey, Guinness (Guinness), and Smirnoff (Smirnoff) ready-to-drink products have grown.

The company remains unchanged in its FY2027 guidelines, and its organic net sales are expected to remain roughly flat, with North America expected to decline in the middle single digits (assuming a market decline of about 3%); organic operating profit is low to mid-single digit growth, including about 40% of the cost savings of the new operating structure of approximately US$850 million and about 25% of the supply chain plan's savings of approximately US$150 million; capital expenditure of approximately US$1.25 billion; and free cash flow of approximately US$2 billion (including special restructuring expenses of approximately US$850 million)

In terms of exchange rate, based on the October 31 spot exchange rate, the negative impact on net sales for the whole year was approximately US$100 million.

CEO Dave Lewis said that the overall first quarter was in line with expectations, and full-year guidance has been reiterated. Growth in Latin America, Europe, Middle East Africa, Asia Pacific, and India is satisfactory. North America is still the biggest challenge, but “clear action is underway,” and the first quarter results are “a small step in the right direction.”

According to the company's annual report, he has cut around 2,000 jobs since taking office in January, equivalent to 6% of the total number of employees worldwide. He also asked teams to find savings and introduce a simplified management hierarchy. Furthermore, the sale of East African brewing to the Asahi Group is expected to be completed in the second half of 2026, and the sale of the Royal Challengers Bengaluru cricket team is also underway.