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Drinks

Diageo Sees First-Half Sales Raised By High-End Spirits

Drinks giant Diageo has reported a 16% increase in first-half sales, as more consumers bought high-end spirits and bars increased orders as they reopened after coronavirus lockdowns.

Operating profit increased by 22.5% to £2.7 billion (€3.23 billion) in the six months to December 31, with its operating margin up by 190 basis points, the maker of Johnnie Walker whisky and Tanqueray gin said.

Net sales rose 15.8% to £8 billion (€9.58 billion).

On-Trade And Off-Trade

'Growth reflects continued recovery in the on-trade, resilient consumer demand in the off-trade and market share gains, and was underpinned by favourable industry trends of spirits taking share of total beverage alcohol and premiumisation,' Diageo said in a statement.

The world's largest spirits maker has benefited from shoppers stocking up on spirits and beers at home during the COVID-19 pandemic, often trading up to more expensive types of alcohol. As lockdowns have eased, particularly Europe and North America, bars have had to restock, buying more than the previous year.

'Continued Premiumisation'

"Strong sales volume growth and continued premiumisation drove an improvement in organic operating margin during the half," commented Diageo chief executive Ivan Menezes.

"This was achieved while increasing our investment in marketing to gain share and support innovation, particularly in North America and Greater China. In addition, our focus on revenue growth management and productivity savings are helping to mitigate the impact of cost inflation."

Menezes added that Diageo has made a "strong start" to fiscal 2022, however the company expects near-term volatility to remain, citing potential impacts from COVID-19, global supply chain constraints and rising cost inflation. The company remains optimistic about future growth, however.

Rival Rémy Cointreau this week said it is confident demand for its premium cognac in China, the United States and Europe will underpin profit growth this year after the French spirits group beat quarterly sales forecasts.

Analyst Viewpoint

Commenting on its performance, analyst Laurence Whyatt of Barclays said, "We think these results will be taken well by the market, with the company reiterating its medium-term outlook of +5-7% OSG and +6-9% organic EBIT growth.

"Given the YTD rotation into value and away from quality names, we see Diageo as very attractive at these levels (-10% YTD and trading on 22.1x CY23E P/E) and the stock remains our long-term preferred name in EU Bevs."


News by Reuters, edited by ESM. For more Drinks news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.

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