Diageo Plc shares rose after the world’s largest distiller said consumers remain resilient and it’s been able to pass along most price increases to customers.
(Bloomberg) — Diageo Plc shares rose after the world’s largest distiller said consumers remain resilient and it’s been able to pass along most price increases to customers.
The maker of Johnnie Walker whisky and Smirnoff vodka reported a 6.5% sales increase on an organic basis for the past year, just ahead of analysts’ estimates. It reiterated its guidance for the coming year.
Diageo shares rose as much as 3.3% in London.
“We can consistently deliver resilient performance in a difficult macro environment,” said Chief Executive Debra Crew in an interview on Bloomberg Television. Crew said Diageo had been able to pass along the price hikes it needed to so far, and didn’t rule out further increases.
Inflation has started to ease and big consumer goods companies are looking to improve their margins and claw back volumes. Premium spirits have been resilient — seen as an affordable and occasional luxury for the middle classes in richer countries — and benefiting from a shift away from beer and wine consumption.
Inventory Levels
While Diageo’s volumes fell in the second half, particularly in the US, there are signs of improvement in North America and other regions remained strong.
“The company states that demand is normalizing and that inventory levels at distributors are now back to normal levels there,” said Alicia Forry, an analyst at Investec Securities. “All other regions delivered solid growth over the full year, and Europe even accelerated sales growth in the second half.”
Organic volumes fell 5% in North America because of a tough comparison with last year, when sales rebounded following supply chain issues and glass shortages. Sales of tequilas including Don Julio and Casamigos grew 15% in the US in the past year even as spirits declined.
“There are certain segments of the consumer group that are finding it harder with inflation,” Chief Financial Officer Lavanya Chandrashekar said of the US. The most premium segment, with bottles costing more than $100, isn’t growing as quickly as before, she said.
China Sales Decline
In Europe, organic sales grew 11%, with double-digit growth across most markets, showing the resilience of premium spirits as inflation peaks and consumers cut down on other branded products. Still, the operating margin in the region shrank.
Greater China sales fell 4% because of lockdowns on big banqueting events which drive sales in local baiju liquour. “We’re seeing China come back. It’s a little bit slower than we expected,” Crew said.
Crew took over as CEO at the distiller in June after the death of Ivan Menezes accelerated her ascension to the top job. Menezes joined Diageo when it was created in 1997 and transformed it into the world’s biggest premium drinks company.
The company maintained its organic sales guidance of between 5% and 7% and operating profit growth in the range of 6% and 9%. The company also said it was switching its reporting currency to the US dollar from July 1. North America represents 39% of Diageo sales.
Read More: Former Diageo CEO Ivan Menezes Dies After Brief Illness
–With assistance from Dani Burger and Mark Cudmore.
(Adds comments from CEO, CFO starting in fourth paragraph)
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