Europe Enjoys ‘shutdownfreude’ Over U.s. Debt Troubles

Diageo Plc (DGE.L), the world’s biggest spirits company, reported a 3.1 percent rise in sales for its first quarter, ended on September 30. While sales rose 10.9 percent in Latin America and the Caribbean, 5.1 percent in North America, they grew only 1.3 percent in Africa, Eastern Europe and Turkey and 0.6 percent in Asia Pacific – markets whose growth drinks firms have been relying on as austerity-hit Western Europe struggles. Sales in Western Europe fell 1.1 percent. Several analysts said Diageo’s results were below consensus expectations for an overall sales rise of 4 percent. Investec analyst Martin Deboo said the results for Diageo, were maker of Johnnie Walker whisky and Smirnoff vodka, fitted his sell thesis – “that emerging markets are set to make life difficult for Diageo for a while”. Both Diageo and France’s Remy Cointreau (RCOP.PA) cited a Chinese government crackdown on gift-giving as a drag on sales there. Remy, which generates about 40 percent of its operating profit from cognac sales in China, said wholesalers were reducing inventories after sales fell short of expectations during the Chinese New Year. The maker of Remy Martin cognac, Cointreau liqueur and Mount Gay Rum said revenue declined 5.3 percent on a like-for-like basis to 294.4 million euros (247 million pounds) in the three months to September 30, its second quarter, compared with a 2.3 percent decline in the previous quarter. Sales of Remy Martin cognac fell 8.3 percent like-for-like, compared with a 12.9 percent slump in the first quarter, and the firm said China would continue to weigh on sales in the coming months. A recent weakening of various currencies against the U.S. dollar has also hit results. Diageo, which made a net profit of 2.59 billion pounds in the year to June 30, said that, based on spot rates, foreign exchange factors would reduce 2014 operating profit by 165 million pounds. Meanwhile brewer SABMiller Plc (SAB.L), maker of Peroni and Grolsch beers, reported net revenue rose 6 percent in its second quarter, after a 2 percent rise in the first. Sales rose 4 percent in Latin America, 3 percent in North America, 12 percent in Africa, and 5 percent in Asia Pacific, but were flat in Europe. “We see this as a solid result in tough market conditions,” said Numis Securities analyst Wyn Ellis.

Where is the reaction of the rating agencies to the irresponsible behavior of the worlds biggest economy? Mr. Fahrenschon, a former Bavarian finance minister, asked the crowd. Even in Europe, theres a tradition of parliaments struggling to seal a budget deal, Mr. Fahrenschon said, harvesting a round of applause. But in Europe it is good form that contracts that have been made salaries and social benefits are still serviced even in a period without a budget. Mr. Fahrenschon was speaking before Fitch Ratings Service put the U.S. credit rating on negative watch and warnedthat the governments failure to honor interest or principal payments on U.S. Treasury securities would trigger a downgrade to restricted default. But Mr. Fahrenschon was demanding harsher treatment than the one set out in the Fitch warning. Government finances in the U.S. were systemically and qualitatively different from Europe, he said, because by not paying salaries and benefits the government was already reneging on the social contract it had entered with its citizens. I believe that a budget that cannot guarantee that commitments that have been made are followed through has to be evaluated differently, he said. *Massive h/t to Oliver Grimm , U.S.

Europe faces new wave of oil refinery extinctions

“Cheap gas is making a huge difference to the profitability of U.S. refining industry. The loser is Europe. It has to be. There is no consolidation going on and no great consolidation hope,” Torbjorn Tornqvist, chief executive officer of trading house Gunvor told the Oil & Money conference this month. Diesel imports from Russia, Asia and the U.S. Gulf Coast reached a record 4 million tonnes in September, according to traders. “The trend of U.S. exporting products is going to continue, you’re going to see diesel coming from the United States to Europe for the foreseeable future,” the head of Glencore’s oil division Alex Beard said this month. 2013 may go down as one of the weakest in recent decades, as refining margins in the third and fourth quarter plummeted due to high crude costs and weak product demand. Total, Europe’s biggest refiner, said refining margins in the region had dropped to a near four-year low of $10.6 per tonne in the third quarter. Other than the old, simple East European refineries, plants in coastal areas such as Italy that are easily accessible for importing remain the most vulnerable. This year was set to go down as one of the worst for the European refining industry, with refinery utilisation slipping down to around 78 percent in 2013, according to JBC. The path taken by the Mantua refinery is not new. Last year, TotalErg, a joint venture between France’s Total and Italian refiner ERG, converted its 90,000 bpd refinery outside Rome to a storage hub.