Diageo issued a brief interim management statement for the three months ended Sept. 30. Overall, the company’s organic net sales climbed 3.1% in the period, led by North America (up 5.1%) and Latin America and Caribbean (up 10.9%). Analysts continue to believe that over the next decade Diageo will grow revenue by almost 6% per year and earnings per share by roughly 8% to 9% per year. Overall, we haven’t wavered from our stance on the company’s economic moat, which remains wide, bolstered by its premium brands and unmatched geographic scale.

Diageo’s business in the United States continues to premiumize, with strong performance from the Ciroc, Crown Royal, and Ketel One brands. We continue to forecast that spirits will continue to gain share of throat in the coming year at the expense of beer. CEO Ivan Menezes is still forecasting a low-single-digit decline in Diageo’s Western European business, which strikes us as reasonable in light of the challenging macro environment.

Recently, the Chinese government has been cracking down on corruption, bribery, and gift-giving to public officials. As such, demand for high-end spirits has fallen, and this has negatively affected several publicly traded Chinese spirit companies (such as Kweichow Moutai and Wuliangye Yibin) as well as Diageo’s Chinese white spirits subsidiary (Shui Jing Fang). However, despite weakness in baijiu and white spirits, management confirmed qualitatively that Diageo’s super- and ultra-premium scotch brands continue to perform well in China.