- Johnnie Walker maker serves up forecast-beating revenues
- Delivers strong growth in scotch, tequila and beer sales
- Warns of ‘potential weakening’ of consumer spending power ahead
Shares in Diageo (DGE) improved 0.2% to £37.73 after the drinks giant served up forecast-beating sales for the year to June 2022 driven by strong organic growth as the global hospitality trade continued its recovery from Covid, the retail channel remained resilient and thirsty consumers spent more on premium spirits.
The Johnnie Walker whisky-to-Smirnoff vodka maker, whose unrivalled portfolio of brands confers pricing power on the business, crucial during inflationary periods, said price increases and supply productivity savings had ‘more than offset the absolute impact of cost inflation’ and ‘mostly offset the adverse impact on gross margin’.
However, Diageo also issued an understandably cautious outlook for the new financial year, warning of significant cost inflation and a potential weakening of consumer spending power ahead.
DOUBLE-DIGIT GROWTH
The FTSE 100 beverages behemoth, which also owns the likes of iconic stout Guinness as well as Tanqueray gin and tequila brands Casamigos and Don Julio, reported a 21.4% rise in net sales to £15.5 billion for the year to 30 June 2022.
That was comfortably ahead of the 16.1% jump expected by analysts, while Diageo’s operating profit bubbled up 18.2% to a bumper £4.4 billion.
Diageo highlighted strong double-digit growth across all geographic regions, with particularly tasty growth of scotch, tequila and beer, and said its ‘Premium-plus’ brands drove 71% of the year’s organic growth.
CEO Ivan Menezes expressed confidence that Diageo can deliver its medium-term guidance of organic sales growth ‘consistently’ in the 5% to 7% range and organic operating profit growth ‘sustainably’ in the 6% to 9% range.
PREMIUMISATION PLAY
‘We expanded operating margin while increasing marketing investment ahead of net sales growth and we used our strong cash generation to invest in long-term growth,’ enthused Menezes.
‘We benefitted from the on-trade recovery, continued global premiumisation trends, with our super-premium-plus brands up 31%, and from price increases across our regions.’
Menezes added: ‘I am particularly proud of the performance of Johnnie Walker, which delivered double-digit growth across all regions to surpass 21 million cases globally.’
OUTLOOK CAUTION
Yet looking ahead to fiscal 2023, Diageo’s leader sounded a more cautious note. ‘We expect the operating environment to be challenging, with ongoing volatility related to Covid-19, significant cost inflation, a potential weakening of consumer spending power and global geopolitical and macroeconomic uncertainty,’ he warned.
‘Notwithstanding these factors, I am confident in the resilience of our business and our ability to navigate these headwinds.’
Menezes insisted his charge is ‘making good progress’ towards its ambition of delivering a 50% increase in its value share of the total beverage alcohol market to 6% by 2030.
And having returned £3.6 billion to shareholders through buybacks last year under its £4.5 billion return of capital programme, the cash-generative drinks colossus proposed a 5% hike in the final dividend to 46.82p to take the annual total dividend up 5% to 76.18p.
