Diageo driven by sales, market growth
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By William Spain, MarketWatch
Last Update: 1:09 PM ET Feb 16, 2006
CHICAGO (MarketWatch) -- Growth and market-share gains in North America and other regions for alcohol behemoth Diageo offset some weakness in Europe, delivering across-the-board gains in revenue, volume and profit in its fiscal first half.
Before the start of trading in the United States, London-based Diageo (DEO :
In North America, volume for the maker of Smirnoff vodka, Captain Morgan rum, Harp lager and dozens of other beverages, grew 4%, while sales after excise taxes were up 7% and operating profit rose 5%. The company's share of the spirits market hit 28%, up 0.2 points. Beer sales jumped 18% with strong growth in Guinness, Red Stripe and Smithwick's, while wine sales rose 6%, the company said.
However, "higher input costs, primarily as a result of the higher oil price and increased costs behind our innovation pipeline, together with the adverse impact of the hurricane season, have constrained operating profit growth," Diageo said.
In Europe, volume was flat while sales after excise taxes slipped 1%, even as operating profit increased 7%.
A continuing decline in the ready-to-drink segment in Europe hurt revenue growth, Diageo added, but margins have expanded and spirits volume were up 2%.
In the rest of the world, volume was up 11%, while sales after taxes and operating profit both climbed 12%. Johnnie Walker and Smirnoff were standouts in volume growth, with rises of 12% and 13%, respectively.
Diageo is looking to post similar results for the rest of its fiscal year.
"Material changes to these first half trends are unlikely in the balance of the year," said Chief Executive Paul Walsh in the earnings report. "We are therefore comfortable in reiterating our full-year guidance of 7% organic operating profit growth."
Shares of Diageo added 1.6% by the close in London and were trading up marginally at $60.63 in New York.
The numbers, wrote Morgan Stanley's Alexandra Oldroyd on Thursday, "should come as a relief to the market that had carried a number of concerns into these results. The growth has been driven by the international region, providing the first evidence that Diageo's change of approach towards emerging markets and increased resource allocation to them is paying off."
For Sonya Ghobrial of Goldman Sachs, "Diageo is becoming a little more aggressive overall in driving volume and market share at the expense of price/mix per liter, but only where this generates an incremental profit gain."
The trend, she continued, "is clear across the international platform and whilst pricing is on track across the key brands in the United States, this is no more than was expected and required to offset cost inflation." End of Story
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