Diageo sales jump on premium spirits and bar restocking

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LONDON, Jan 27 (Reuters) – Drinks group Diageo on Thursday reported first-half sales up nearly 16%, buoyed by high-end spirits for home use while bars increased orders as they reopened after coronavirus lockdowns.

The maker of Johnnie Walker whisky, Tanqueray gin and Guinness stout also said it will speed up its share buyback programme, aiming to complete the 4.5 billion pound ($6 billion)plan in its 2023 financial year rather than by the end of June 2024.

Diageo, the world’s largest spirits maker, has benefited from shoppers stocking up on alcohol at home during the COVID-19 pandemic, often trading up to more expensive types of alcohol.

Sales of premium products made up more than half of net sales.

Then as lockdowns eased, particularly in Europe and North America, bars have had to restock, buying more than the previous year. Net sales grew 13% in North America and were up 27% in Europe.

“The impact that we’re seeing from COVID is kind of like ‘Whack-a-Mole’. It’s different in different parts of the world at different points in time,” Chief Financial Officer Lavanya Chandrashekar said. “Where there are no restrictions, we are seeing that on-trade is sometimes even better than people remember.

“But, I mean, the total number of people visiting Thailand has come down significantly, so business there is not doing as well as it was when in the heydays of travel.”

Operating profit rose by 22.5% to 2.7 billion pounds in the six months to Dec. 31, with its operating margin up by 190 basis points, Diageo said.

Net sales increased by 15.8% to 8 billion pounds.

Rival Remy Cointreau this week said it is confident demand for its premium cognac in China, the United States and Europe will underpin profit growth this year after the French spirits group beat quarterly sales forecasts.

The European beverages sector outperformed the wider market almost uniformly in the fourth quarter, Bernstein analysts said. The distillers led the way while global brewers were more subdued because of rising raw material costs.

Shares in Diageo have repeatedly touched record highs since the company said in November that it expects organic net sales growth to be between 5% and 7% for its 2023-2025 financial years, against 4% to 6% growth over 2017-2019.

On Thursday the shares were up marginally at 36.60 pounds.

Deutsche Bank last week raised Diageo’s target price to 46.50 pounds from 45.30 pounds.

Photo courtesy of Diageo

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