Dive Brief:
- Diageo reported an increase in net sales and operating profit up 14.5% and 28% respectively, in the six months that ended Dec. 31, according to a company statement. The positive report reflects accelerated organic growth and a favorable exchange rate.
- The company reported sales growth of 4.4% in its latest earning’s report, a better-than-expected result. Earnings per share increased 21%, buoyed by higher operating profits and favorable exchange rates, which more than offset the impact of disposals and higher taxes.
- Looking ahead, the company is confident it should hit its full-year target of consistent mid single-digit top line growth and 100 basis points of organic operating margin improvement in the three-year period concluding June 30, 2019.
Dive Insight:
Diageo, the maker of Johnnie Walker Scotch and Smirnoff vodka, spent much of 2016 looking to bring new life into the business after years of tepid performance. And the latest earnings report shows that the spirits manufacturer is getting its groove back. The company posted organic growth in every region, including a 3% increase in sales in North America. Diageo had been focused on growing there after losses earlier in the year. While this report doesn't equal the 10% gains in this market earlier in 2016, it signifies sustained growth. Diageo CEO Ivan Menezes told CNBC on Thursday that the North American market is "attractive" since Americans are "drinking better."
The Britain-based spirits giant was also helped out by the devaluing of the pound. With the dollar retaining its value above the UK's currency, sales increases in the U.S. and other foreign nations gave Diageo's profits an extra kick.
On the business side of things, management changes and a greater focus on retailers, rather than wholesalers helped boost the profits.
The unexpected increase in sales is a boost to investors. Analysts estimate the company’s earnings will increase 37.8% over the next three years.
In the earnings report, Menezes said the company is becoming more nimble to continue this growth. It is identifying consumer trends faster, expanding the reach of products across markets and developing trade channels to capture growth opportunities.