Shares in Diageo are up as the global drinks maker beats forecasts

Courtney Goldsmith
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The maker of Guinness beer showed improved growth in the half-year
The maker of Guinness beer showed improved growth in the half-year (Source: Getty)

Diageo, the maker of Smirnoff, Guinness and Johnnie Walker, beat expectations for the six months ended 31 December after years of stagnant growth.

The figures

The drinks giant said reported net sales were up 14.5 per cent at £6.4bn, while operating profit rose 28 per cent at £2.1bn, reflecting organic growth and favourable exchange rates.

Diageo experienced organic growth across all regions, with volume up 1.8 per cent and net sales up 4.4 per cent on the previous year, above the average analyst estimate of 3.1 per cent, according to analysts.

Pre-exceptional earnings per share increased 21 per cent to 62p, and the interim dividend increased five per cent to 23.7p per share.

Shares were up 4.69 per cent at 2,241.50p in morning trading.

Why it's interesting

After Britain's surprise decision to leave the European Union – a move Diageo said it was against – the plunge in the pound has benefited profits as it makes 90 per cent of its revenue outside the UK. Exchange rate movements added an estimated £1.4bn to Diageo's net sales, while adding £460m to its operating profit.

Improved performance in the brewer's US spirits business, particularly across its scotch brands, was a highlight of the half-year, said chief executive Ivan Menezes. Reported net sales grew 17 per cent as it zeroed in on marketing and innovating its brands including Crown Royal and Johnnie Walker.

In September Diageo said it was mulling plans to slash jobs at its London headquarters as part of a productivity programme to boost profits.

Full-year expectations have remained unchanged, but Menezes said he is confident the company will deliver consistent, mid-single digit top line growth in the three years ending 30 June 2019.

What Diageo said

Menezes said:

Diageo is building a stronger, more consistent, better performing company. We are identifying consumer trends faster, expanding the reach of our products across markets and developing trade channels to capture these growth opportunities.

Our productivity work is on track, driving efficiency and effectiveness across the business. Our work on trade and marketing spend gives us better data enabling smarter, quicker decisions that generate higher returns.

What analysts said

Phil Carroll, analyst at Shore Capital, said:

The results are strong and we believe are ahead of the market’s expectations.

We also highlight that it has been achieved despite some headwinds in some markets and with some deliberate inventory management holding back sales when depletions in some markets have been stronger than shipments (sales).

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