Diageo has performed in line with expectations in Q1, as its reported sales increased by 1.2% to $4.9bn in the three months to 30 September.

The beverages firm, which owns brands including Guinness, Smirnoff and Captain Morgan, said this increase was a result of positive organic growth, partly offset by unfavourable foreign exchange and the impact of disposals.

Across its regions, Latin American and Caribbean (LAC) and Asia Pacific delivered mid-single-digit growth, while India, Europe, Middle East and Africa saw low-single-digit growth.

However, organic net sales dropped in North America by mid-single-digits, reflecting continued market softness. While sales of Guinness and Smirnoff increased by double-digits, this was offset by a double-digit decline in spirits, with Don Julio, Casamigos and Crown Royal offsetting growth in Johnnie Walker.

Diageo CEO, Sir Dave Lewis, stated: "Overall, Q1 was in line with expectations, and we have reiterated our full year guidance. We were pleased with the growth across LAC, EMEA, APAC and India.

"In North America, we continue to focus on making our offer more competitive, and whilst this remains our biggest challenge, clear actions are underway. Whilst the market remains challenging, and volatility continues given the geopolitical uncertainty and impact of the ongoing conflict in the Middle East on energy, supply and distribution, results in the first quarter represent a small step in the right direction."

In its outlook, Diageo reiterated its full-year guidance, with organic net sales growth remaining broadly flat. Organic net sales in North America are expected to decline by mid-single-digits, assuming the market is down around 3% with improving share performance.

Furthermore, its organic operating profit growth is expected to be up by low-to-mid-single-digit, which includes around 40% of the $850m in costs saving from the operating framework changes and 25% of the $150m cost savings from the supply chain initiatives.

Following the update, shares in Diageo increased by almost 3%.

Head of markets at AJ Bell, Dan Coatsworth, concluded: "Chief executive Dave Lewis is making tangible progress with stripping costs out of the business and positioning Diageo at more affordable price points rather than focusing on the high end of the market.

"That’s not to say the job is already done. While the key North American market saw sales decline less than anticipated, they are still on a downwards trajectory. The lingering concern for shareholders, like a hangover you just can’t shake, will be that shifting drinking habits among younger people will have a long-term impact on demand.

"For now, Lewis is delivering on the plan he has set out to the market. Rebuilding credibility with the market is important but eventually investors will want evidence that the company can get back on a sustainable growth path."

---