Johnnie Walker maker Diageo beats first-half sales estimates, but key US market sales weaken

DIAGEO, the world’s largest spirits maker, beat first-half sales forecasts on Thursday (Jan 26), as it raised prices and more people drank premium spirits. The London-based company, which makes Tanqueray gin, Captain Morgan’s rum and Ketel One vodka, said organic net sales rose 9.4 per cent in the six months to Dec 31, beating analyst forecasts for a 7.9 per cent rise.

The growth reflected organic volume growth of 1.8 per cent, indicting 7.6 percentage points of higher price growth. Organic operating profit grew 10 per cent.

The spirits market has been resilient amid a global cost-of-living crisis that has otherwise hit volumes at other consumer goods companies, with people continuing to buy what they consider occasional treats for themselves even as they trade down to cheaper food brands.

Diageo’s “premium-plus” brands, which are more expensive than brands such as Smirnoff vodka but under about £50 (S$81.20), drove 65 per cent of its organic net sales growth, the company said.

Since the pandemic, Diageo has benefited from people buying more expensive types of alcohol while staying home under lockdown. The company and its rivals invested heavily in marketing and improving their products to capitalise on newfound demand, focusing on premium brands such as Bulleit Bourbon and Don Julio tequila.

“We believe we are well-positioned to deliver our medium-term guidance of consistent organic net sales growth in the range of 5 per cent to 7 per cent and sustainable organic operating profit growth in the range of 6 per cent to 9 per cent for fiscal 2023 to fiscal 2025,” chief executive Ivan Menezes said in a statement.

The company, which said people mainly drank more tequila, scotch and Guinness, added it would return up to £500 million to shareholders – in addition to its existing buyback commitment – this financial year. It raised its interim dividend by 5 per cent to 30.83 pence per share.

Diageo also said it was “confident” Chinese consumers would return as Covid-19 infections fall in that country.

Not all quarters were sanguine, however. Over in the US, Diageo shares dropped after it reported a slowdown in sales in North America, raising concern that a key motor for earnings growth is weakening.

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Sales rose 3 per cent on an organic basis in North America in the six months through December, missing estimates. The region was the source of about half of Diageo’s earnings last year. Diageo shares fell as much as 6.1 per cent.

“We think that the US miss is the most significant element of these results,” wrote analysts at RBC. REUTERS, BLOOMBERG