Diageo reported an increase in profit and beat analyst expectations for sales growth but investors were disappointed by the company’s performance in the US market, sending shares down over six per cent in morning trade.
In the six months to 31 December, the world’s largest spirits manufacturer’s pretax profit increased to £3.1bn from £2.7bn
On an organic basis, sales grew at 9.4 per cent, beating analyst consensus of a 7.9 per cent increase. Growth was delivered across most categories, but was particularly strong in scotch, tequila and beer.
However, sales in the crucial North American market grew only three per cent.
Hargreaves Lansdown’s Susannah Streeter commented: “it’s glass half empty time for Diageo, which poured out some resilient results showing a surge in super-premium brand drinks, but disappointed in its outlook for the all-important American market.”.
Although Diageo saw cost inflation, price increases and supply productivity savings more than offset its impact. Premium-plus brands contributed over half of reported net sales and drove 65 per cent of organic sales growth.
The drinks maker noted that the operating environment continues to be challenging. It expects sales growth to continue in its key markets in the second half of 2023, but at a slower pace than the first half.
The company said its strong sales growth was enabled by its “diversified footprint, advantaged portfolio, strong brands and underpinned by favourable industry trends of premiumisation.”
Chief Executive Ivan Mendez said: “We believe we are well-positioned to deliver our medium-term guidance of consistent organic net sales growth in the range of five per cent to seven per cent and sustainable organic operating profit growth in the range of six per cent to nine per cent for fiscal 23 to fiscal 25”.
It expects its portfolio to benefit as spirits continue to gain market share and says it is “well-positioned across geographies, categories and price points”.
“Diageo has been benefiting from ongoing pandemic habits, when people turned to favourite pricier tipples, including the likes of Johnnie Walker and Tanqueray, for lockdown distraction. Big marketing spend has kept its brand power intact in the first half,” Streeter commented.
Over the period the Guiness-owner acquired Mr Black, a leading Australian premium-priced coffee liqueur, and Balcones Distilling, a Texas craft distiller. It also announced an agreement to acquire Don Papa rum, a premium rum from the Philippines.