Investing.com -- Diageo (LON:DGE) reported a 5.9% increase in organic net sales for its fiscal third quarter, although much of the growth stemmed from temporary benefits.
According to analysts at RBC Capital Markets, about 4 percentage points of the headline growth came from favorable phasing, particularly in North America, and is expected to reverse in the fourth quarter.
Excluding the phasing benefit, the underlying organic sales growth stands closer to 2%.
This marks a modest improvement compared to the 1.4% consensus for the second half, as compiled by Visible Alpha, but the result does not materially change the broader picture for the fiscal year ending in June.
The company maintained its full-year guidance for both sales and earnings before interest and taxes.
It expects a sequential pickup in organic sales growth in the second half of the year, with EBIT projected to decline slightly from a year earlier.
Diageo also adjusted its tax rate guidance, now expecting an effective rate of 25%, up from 24%, following a change in its calculation methodology.
In regional terms, North America drove much of the quarter’s growth, aided not only by timing-related factors but also by continued restocking of tequila, particularly Don Julio, which continues to see strong consumer demand.
Latin America and the Caribbean, as well as the Asia Pacific region, also reported higher growth, though these comparisons benefited from a softer performance during the same period a year earlier.
Capital expenditure for fiscal 2025 is expected to reach the upper end of the previously guided range of $1.3 billion to $1.5 billion.
The company also reiterated its leverage guidance of 3.3 to 3.5 times, above the earlier range of 2.5 to 3 times.
Although U.S. tariffs are expected to impact Diageo’s operating profit growth in fiscal 2026, organic operating profit growth is expected to outpace revenue growth.
The group also confirmed it expects to generate $3 billion in free cash flow under its Accelerate cost-saving program, which aims to save $500 million over three years. This is the first time Diageo has quantified its free cash flow expectations under the initiative.
RBC Capital Markets analysts noted that while Diageo’s latest results were solid, they were less compelling upon closer inspection.
The firm’s "affordable luxury" positioning is under increasing scrutiny, and analysts say the spirits industry’s challenges are prompting ongoing questions about whether its headwinds are cyclical or structural in nature.
Expectations around Diageo’s long-term growth potential are increasingly aligning with those of more traditional consumer goods companies.