Diageo drinkers splurging on high-end spirits
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Diageo drinkers splurge on high-end spirits as Johnnie Walker group beats sales forecasts after rising prices
- London-listed Diageo saw its operating profit rise 15% to £3.2 billion
- Diageo took advantage of people buying more expensive forms of alcohol
Diageo beat sales forecasts for the first half as it raised prices and more people drank premium spirits, new results show.
The London-based group, which makes Tanqueray gin, Captain Morgan’s rum and Ketel One vodka, said organic net sales rose 9.4 percent in the six months to Dec. analysts for an increase of 7.9 percent.
Net sales in the six months to 31 December were up 18.4 per cent to £9.4 billion.
Responsible: Ivan Menezes is the CEO of global beverage group Diageo
The group, which said people mainly drank more tequila, scotch and Guinness, added it would return up to £500m to shareholders this financial year in addition to its existing buyback commitment. It increased its interim dividend by 5 percent to 30.83 pa share.
Operating profit rose 15 percent to £3.2 billion, with earnings per share up 20 percent to 100.9 pence
The spirits market has been resilient amid global cost inflation that has otherwise eroded volumes at other consumer goods companies, with people continuing to buy what they occasionally consider treats for themselves, even as they trade in for cheaper food brands.
Diageo’s “premium-plus” brands, which are more expensive than brands like Smirnoff vodka, accounted for 65 percent of organic net sales growth.
Since the pandemic, Diageo has benefited from people buying more expensive forms of alcohol to consume at home.
The company and its rivals have invested heavily in marketing and improving their products to capitalize on renewed demand, focusing on premium brands such as Bulleit Bourbon and Don Julio tequila.
Chief executive Ivan Menezes, said: ‘We believe we are well positioned to deliver on our mid-term outlook of consistent organic net sales growth in the 5 percent to 7 percent range and sustainable organic operating profit growth in the 6 percent range. percent to 9 percent for fiscal ’23 through fiscal ’25.’
He added, “While the working environment remains challenging, I remain confident in the resilience of our business and our ability to navigate volatility.”
Diageo Shares were down today and are down 3.89 percent or 143.00p this morning to 3,532.00p.
Chris Beckett, head of equity research at Quilter Cheviot, said: ‘This morning’s results show that Diageo’s sales and earnings have both beat expectations, which is certainly a good thing.
While sales in Europe and Asia remain strong, performance in the US is disappointing. That said, Tequila continues to sell well in the US, while Scotch is one of the best performing products elsewhere.
“The impact of the world reopening after the lockdown and the increase in sales as a result is still visible in these results, but will normalize from now on. Diageo’s guidance on future performance is just about OK, but the market is likely to focus on the expectation of further normalization in Europe and the US as the pandemic is now firmly in the rearview mirror.
“The market is against these kinds of defensive names right now and after these results, stocks are likely to be weak today. But the company’s long-term focus on pricing power and premiumization is clearly reflected in these numbers.”