Diageo has returned to organic sales growth in its first quarter, as a smaller-than-expected fall in North America gave chief executive Dave Lewis an early boost in his effort to turn around the world's largest spirits maker.

The owner of Guinness, Johnnie Walker and Smirnoff said net sales rose 1.2% to $4.93 billion in the three months to 30 September. Organic net sales grew 1.4% including East African Breweries, and 0.6% excluding that business, beating analysts' expectations of a 0.4% decline in a company-compiled poll.

North America, Diageo's largest market, remained the weak spot. Organic sales there fell 3.6%, but that was considerably better than the 6.7% drop analysts had expected. The company said growth in Guinness and the timing of some shipments helped, while its tequila labels Don Julio and Casamigos and its Crown Royal whisky all suffered double-digit declines.

All regions recorded organic growth during the quarter. Sales in Europe, the Middle East and Africa rose 2.4% on an organic basis to $1.26 billion, with strong performances in Turkey, Africa and the Middle East more than offsetting weakness in Italy and France. Growth in the group's other regions also contributed, with volumes up 1.1% across the group and price and product mix adding 0.3 percentage points.

Excluding East African Breweries, volumes were 0.1% lower and price and product mix contributed 0.7 percentage points to growth. That split matters because it shows the return to growth was driven more by what Diageo charged and what it sold than by selling more drinks overall, a pattern that fits a company trying to rebuild profitability while demand stays soft.

Diageo left its full-year guidance unchanged. It still expects broadly flat organic net sales for the year to June 2027, with organic operating profit growing by a low- to mid-single-digit percentage. The company said trading remained in line with its expectations despite the difficult backdrop.

Lewis, the former Tesco boss who took over as chief executive in January, described the quarter as "a small step in the right direction". He said the market remained tough and that geopolitical uncertainty and the ongoing conflict in the Middle East were driving volatility in energy, supply and distribution.

He also made clear that the North American recovery will take time. Diageo does not expect to revive growth there for years, and Lewis told investors that initiatives based on price and pack-size changes would take at least nine months to begin bearing fruit. His plan rests on making Diageo's offer more competitive in its biggest market while cutting costs elsewhere, including a programme to save $1 billion over three years.

Some parts of that plan are already showing results. Diageo said its Smirnoff Ice label grew 15% globally, with strong demand in North America, as the company pushed faster-growing, convenient drinks such as canned cocktails. Johnnie Walker also grew in North America, partly offsetting the falls in tequila and Canadian whisky.

Shares in Diageo rose 2.65% by midday in London on Thursday after the update, as investors welcomed the better-than-expected North American result. The shares remain well below the levels seen in 2022, after several years in which weak demand, changing drinking habits, tariffs and a soft economic backdrop weighed on premium spirits.

Diageo has also moved to sell assets as part of the turnaround, including its majority stake in Kenyan brewer East African Breweries to Japan's Asahi Group. Including that business, group organic sales rose 1.4% in the quarter; excluding it, the increase was 0.6%.

The first quarter therefore offers encouragement rather than proof of a recovery. Sales have stopped falling, the North American decline has slowed, and guidance has been held. Whether Lewis can turn that into sustained growth will depend on the North American market itself, where consumers have cut back on premium spirits and where Diageo has been losing market share.