Diageo Returns to Growth on Improved Sales of U.S. Spirits

Diageo Confident on Targets as Sales Meet Estimates
  • Whiskey, tequila and vodka drive 3% North America sales gain
  • Management is starting to deliver, Morgan Stanley analyst says

Diageo Plc returned to growth, reporting a profit gain above analysts’ estimates as improved demand for whiskey, tequila and vodka in the U.S. offset declines in Brazil and China.

Operating profit excluding some items rose 3.5 percent on a so-called organic basis in the twelve months ended June 30, Diageo said Thursday. Analysts expected growth of 3.1 percent. Organic revenue grew 3 percent, an improvement on last year’s flat sales. The shares rose as much as 1.8 percent in London.

“After a tough fiscal 2014 and 2015, management is starting to deliver on its promises,” wrote Olivier Nicolai, an analyst at Morgan Stanley.

Chief Executive Officer Ivan Menezes has returned Diageo to growth after two years of lackluster results by reshuffling senior managers, cutting costs and boosting productivity. Investors expect that the company will benefit from the weaker pound as profits made outside the U.K. will be worth more when translated back into sterling. Diageo said currency swings will boost net sales this year by about 1.1 billion pounds ($1.5 billion) and operating profit by 370 million pounds.

“We would expect to see positive momentum in North America and look to close some gaps in market share in 2017,” Chief Financial Officer Kathy Mikells said on a call with reporters. “We’ve printed a great set of results and are really looking forward to the next fiscal year.”

Sales in North America rose 3 percent, driven by whiskies such as Crown Royal and Bulleit. Smirnoff vodka and Captain Morgan rum, which had dragged down results in previous periods as drinkers sought out smaller craft spirits, improved to post 2 percent gains, the company said. In emerging markets the picture was bleaker, with Brazil down 7 percent due to tax increases and subdued consumer demand, while greater China dipped 2 percent on continued declines in scotch.

The shares rose 1.6 percent to 2,172 pence at 10:23 a.m. in London and have gained about 18 percent since Britain’s vote to leave the European Union as the pound weakened. The company, which advocated that the U.K. remain a member of the 28-nation bloc, has said that it is a priority to ensure the country continues to benefit from open access to the EU.

Diageo also maintained its sales forecast for the current financial year of mid-single-digit revenue growth. Organic figures exclude the impact of currency fluctuations and acquisitions.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE