Tequila and gin boost Diageo’s half-year sales

Diageo has registered an organic net sales increase of 7.5% to £6.9 billion (US$9bn) for the final six months of 2018, bolstered by the double-digit growth of Tequila and gin.

Diageo has unveiled a £660 million stock buyback plan

Organic operating profit for the period increased by 12.3% to reach £2.4bn (US$3.1bn).

In reported terms, which takes into account exchange rate movements and acquisitions or disposals, net sales grew 5.8%, while reported operating profit was up 11%. Free cash flow sits at £1.3bn (US$1.7bn), up £317 million (US$415.8m).

The Johnnie Walker and Smirnoff producer also said it would buy back £660m ($866.9m) worth of shares, bringing its total buyback programme to £3bn (US$3.9bn) for the year ending 30 June 2019. Last July, the firm said it would purchase £2bn (US$2.6bn) worth of shares.

All regions contributed to Diageo’s “broad-based” organic growth.

The group’s Scotch portfolio was up 7%, bolstered by Asia Pacific, Latin America and Caribbean and North America, but partially offset by a decline in Europe. Johnnie Walker led the growth of Scotch with a 10% gain, while sales of primary Scotch brands also increased by 10%, driven by White & Black.

Vodka “returned to growth”, with sales up 3% thanks to growth in all regions. This increase was partially offset by a continuing decline for Cîroc vodka, sales for which plummeted 12%. Smirnoff witnessed a “strong” performance outside the US, growing sales by 2% overall, while Ketel One reported an impressive gain of 21%.

US whiskey increased by 4% and Canadian whisky grew by 5% after solid performances from both Bulleit Bourbon and Crown Royal.

Gin sales leapt 28%, with double-digit gains across all regions except North America. In particular Gordon’s and Tanqueray performed strongly in Europe.

Tequila posted a 29% net sales increase driven by the “strong double-digit growth” of Don Julio in the US, Latin America and Caribbean, along with Casamigos Tequila in the US.

Baileys cream liqueur grew by 3%, aided by the “continued focus” on the brand’s “indulgent treat year-round positioning”.

Brand disposals

Last month, Diageo completed the sale of 19 non-priority brands to US company Sazerac ahead of schedule in a deal worth US$550 million. The sale “resulted in an exceptional gain before taxation of £154m (US$202.3m)”.

“Diageo delivered broad-based volume and organic net sales growth across regions and categories,” said chief executive Ivan Menezes.

“We continue to expand organic operating margins while increasing investment in our brands ahead of organic net sales growth.

“These results are further evidence of the changes we have made in Diageo to put the consumer at the heart of our business, to embed productivity and to act with agility to enable us to win sustainably.”

Diageo expects to register mid-single-digit organic net sales growth for the full year ending 30 June 2019.