Diageo CEO gets quarterly sales boost in first stage of turnaround 

Nov 5 (Reuters) - Diageo on Thursday posted an unexpected rise in first-quarter sales as an improvement in its struggling US business provided an early tailwind to CEO Dave Lewis' closely watched turnaround plan.

Lewis, nicknamed "Drastic Dave" for his cost-cutting measures at Tesco and Unilever, joined Diageo in January and has moved to overhaul the company and revive growth after years of weak demand, especially in its largest market, the US, where it has also been losing market share.

Shares in the top spirits maker by market value rose 3.5% after it posted organic net sales growth of 0.6% for the three months ended September 30, compared with a 0.4% decline expected by analysts in a company-compiled poll.

Organic net sales declined 3.6% in North America, its largest market, less than a 6.7% drop expected by analysts. The company cited growth in Guinness beer and Johnnie Walker whisky and "shipment phasing".

The results "represent a small step in the right direction," Lewis said in a statement, adding however the market remains tough and ongoing conflict and geopolitical turbulence are driving volatility.

North America remained the group's biggest challenge, he continued.

Diageo doesn't expect to revive growth there for years, even as Lewis moves to lower prices on certain products, revive ailing brands like Smirnoff vodka and shift into fast-growth canned cocktails.

Analysts said on Thursday that the better-than-expected performance in its North America business unit was driven by the timing of shipments rather than these initiatives, with its Don Julio and Casamigos tequila brands and Crown Royal whisky enduring double-digit declines.

James Edwardes Jones, analyst at RBC Capital Markets, added that Diageo saw around 2% price deflation in Europe, the Middle East and Africa, Latin America and Asia Pacific, as the company moved to cut prices to better cater to cash-strapped drinkers - a shift Lewis has pledged will not sacrifice profits.

The CEO has also cut thousands of jobs and promised to save $1 billion over three years. His plans have boosted optimism after years of turbulence, helping shares, though these remain well below levels seen in 2022.

The company has also moved to sell assets, including its majority stake in Kenyan unit East African Breweries to Japan's Asahi Holdings. Including EABL, Diageo's group sales rose 1.4%.

(Reporting by Yadarisa Shabong in Bengaluru and Emma Rumney in London; Editing by Rashmi Aich, Mrigank Dhaniwala, Joe Bavier, Philippa Fletcher)