Gin and tequila keep Diageo in high spirits despite exchange rate headwinds

Alys Key
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CEO Ivan Menezes said the results showed "positive momentum" (Source: Diageo)

Drinks giant Diageo grew sales across every region in the first half of its financial year, with tequila and gin leading the way.

But the Tanqueray owner, which also makes world favourites Guinness, Bailey's and Johnnie Walker, was negatively impacted by currency exchange rates.

The figures

Net sales grew 1.7 per cent to £6.5bn, while operating profit was up 6.1 per cent to £2.19bn.

Underlying profit before tax came in at £2.2bn, missing consensus by 3.3 per cent.

Earnings per share jumped 36 per cent to 82.2p, thanks to the US tax changes. Excluding this change the increase was nine per cent to 67.8p.

Diageo upped its interim dividend to 24.9p, an increase of five per cent.

The company forecast a £60m hit to operating profit and £460m hit to sales for the full year, due to the rise of the pound against the dollar.

Read more: As the Pound surges, is the glass half empty or half full?

Why it's interesting

As one of the world's biggest drinks companies, Diageo's results often show which trends are dominating the global drinks industry.

All of its global giants increased volumes in the period, but Smirnoff's organic net sales dropped as consumers ditched vodka for gin. Tanqueray was the fastest growing of the core brands, up 16 per cent both in volume and in net sales.

Tequila was the fastest growing category, with volumes up 37 per cent and organic net sales up 43 per cent. The strong performance of Don Julio in Mexico and the US was one of the biggest drivers behind the trend.

City analysts had mixed views on the company this morning, with some praising the its cost saving initiatives. Jefferies analysts pointed to "a perfect blend of productivity and top-line growth" while Liberum noted the impact of vodka's decline and said the company was "less attractive" than others in the drinks space.

What Diageo said

Chief executive Ivan Menezes said: "These results demonstrate continued positive momentum from the consistent and rigorous execution of our strategy.

"We have delivered broad based improvement in both organic volume and net sales growth. We have increased investment behind our brands and expanded organic operating margin through our sustained focus on driving efficiency and effectiveness across the business."

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