By Saabira Chaudhuri
LONDON-- Diageo PLC on Thursday reported higher half-year profit as the maker of Johnnie Walker whisky logged broad-based growth in spirits across all major regions, helping to offset a flat performance in beer.
The world's largest spirits company said net profit rose to GBP1.51 billion ($1.9 billion) for the six months ended Dec. 31 from GBP1.41 billion in the same period a year earlier. In the U.S.--Diageo's biggest and most profitable market--organic sales climbed 3.6% from a year earlier, buoyed by growth in bourbon, scotch and tequila.
After lackluster results in the U.S. in recent years, the London-based company--which owns brands include Smirnoff, Guinness and Crown Royal--has been working to improve performance by more closely tracking what is sold to retailers rather than what is shipped to distributors, making management changes, honing its marketing strategy and cutting costs.
"The results today reaffirm that Diageo's recovery in the U.S. is on track," said Liberum analyst Alicia Forry.
Diageo shares rose 4.4% to 2,235 pence at 0835 GMT.
Net sales rose 4% on an organic basis and 15% on a reported basis in the half to GBP6.42 billion, helped by currency moves. Analysts polled by FactSet expected net sales of GBP6.45 billion.
Diageo's U.S. performance came in slightly below the overall market which is logging growth of between 4% and 4.5% according to figures provided by Chief Financial Officer Kathryn Mikells.
The company believes "momentum in the U.S. is building" and that consumer sentiment has continued to improve through Donald Trump's election as president, Ms. Mikells said.
Marketing expenses in North America climbed 1%, with the company spending four times as much on digital and targeting consumers such as Hispanics and African-Americans, who are expected to accounted for much of the business's growth.
Diageo has seen reported results flattered by the weaker pound following Britain's vote to leave the European Union. The company expects currency to help net sales by GBP1.4 billion and operating profit by GBP460 million for the current fiscal year.
In India, Diageo's second-biggest market by sales through its majority stake in United Spirits Ltd. the company saw 4% organic sales growth despite the government's recent demonetization exercise, scrapping high-denomination bank notes. Results were helped by premium brands as well as strong growth in so-called "Indian Made Foreign Liquor" brands--the Indian term for domestic variants of drinks such as whiskey and gin--for which Diageo has launched new packaging and marketing campaigns.
The company continues to contend with legal issues centered on United Spirits's former Chairman Vijay Mallya, tightening alcohol regulation and a tough tax environment, but remains upbeat on India's long-term prospects.
"It has one of the fastest-growing economies in the world, it has a middle class that's just on fire," said Ms. Mikells. "This is a country where consumers already love Western-style spirits."
In Latin America and the Caribbean, organic net sales jumped 11%--a sharp improvement from Diageo's full-year report when sales edged up just 1%. Sales were buoyed by countries including Mexico, Bolivia, Colombia, Ecuador, and Peru, but continued to be dragged down by Brazil, where a slowing economy and tax increases have taken a toll.
Diageo reported a 6% rise inScotch, which at 27% of sales is its largest category, pointing to growth North America, Europe, Africa and Latin America. Those markets helped offset a decline in the Asia Pacific region, in particular in Korea where consumers have been shifting to lower-alcohol beverages. Ms. Mikells predicted Diageo had seen Scotch's declines bottom in China, saying the drink is "beginning to come back."
Beer--which makes up 16% of Diageo's sales--turned in a relatively lackluster performance, coming in flat for the half, driven by higher excise duty in East Africa.
Diageo's beer unit has long been raised as ripe to be carved off and sold, given the company's focus on spirits, but so far Diageo has held on to Guinness and its other beer brands, saying these are useful for making distribution inroads into Africa where it has been pushing spirits such as Smirnoff and Johnnie Walker.
Net sales in Africa climbed 4% in the first half, helped by what the company said is a shift from beer to mainstream spirits.
Write to Saabira Chaudhuri at email@example.com
(END) Dow Jones Newswires
January 26, 2017 04:05 ET (09:05 GMT)
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