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Diageo drinkers splurging on high-end spirits

In charge: Ivan Menezes is the chief executive of global beverage group Diageo

Diageo drinkers splurge on premium spirits as Johnnie Walker Group beats sales forecast after price hike

  • London-listed Diageo saw operating profits rise 15% to £3.2bn
  • Diageo took advantage of people buying more expensive forms of alcohol

Diageo beat its first-half sales forecast by raising prices and increasing the number of people drinking premium spirits, new results show.

The London-based group, which makes Tanqueray gin, Captain Morgan rum and Ketel One vodka, said organic net sales jumped 9.4% in the six months to December 31, beating forecasts for analysts of an increase of 7.9%.

Net sales in the six months to December 31 rose 18.4% to £9.4 billion.

In charge: Ivan Menezes is the chief executive of global beverage group Diageo

In charge: Ivan Menezes is the chief executive of global beverage group Diageo

The group, which said people were mainly drinking more tequila, Scotch and Guinness, added it would return up to £500million to shareholders on top of its existing buyout pledge this financial year. It raised its interim dividend by 5% to 30.83pa per share.

Operating profit jumped 15% to £3.2bn, with earnings per share up 20% to 100.9p

The spirits market has held up well amid global cost inflation that has otherwise hit volumes at other consumer goods companies as people continue to buy what they see as occasional treats for themselves , even if they turn to less expensive food brands.

Diageo’s “premium-plus” brands, which are more expensive than brands such as Smirnoff vodka, generated 65% of its organic net sales growth.

Since the pandemic, Diageo has benefited from people buying more expensive forms of alcohol to drink at home.

The company and its competitors have invested heavily in marketing and improving their products to capitalize on new 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 our medium-term guidance of consistent organic net sales growth in the 5% to 7% range and organic growth sustainable operating profit in the range of 6 percent to 9 percent for fiscal year ’23 to fiscal year ’25.’

He added: “While the operating environment remains challenging, I remain confident in the resilience of our business and our ability to weather volatility.”

Diageo shares fell today and were down 3.89% or 143.00p at 3,532.00p this morning.

Chris Beckett, head of equity research at Quilter Cheviot, said: “This morning’s results show Diageo’s sales and earnings both exceeded expectations, which is certainly a good thing.”

“However, while its sales in Europe and Asia remain strong, its performance in the United States is disappointing. That said, tequila continues to sell well in the United States, while scotch is one of its best-performing products elsewhere.

“The impact of the reopening of the world after the lockdown and the resulting increase in sales are still visible in these results, but they will normalize from now on. Diageo’s guidance on future performance is just about OK, but the market will likely focus on waiting for further normalization in Europe and the US as the pandemic is now firmly in the rearview mirror.

“The market is currently against this type of defensive name and stocks are likely to be weak today after these results. But the company’s long-term focus on pricing power and premiumization is clearly seen in these numbers.

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