Spirits sales boost Diageo

Diageo returned to growth, reporting a profit gain above analysts’ estimates as improved demand for whiskey, tequila and vodka in the US offset declines in Brazil and China.

Operating profit excluding some items rose 3.5% on a so-called organic basis in the 12 months ended June 30, Diageo said.

Analysts had expected growth of 3.1%.

Organic revenue grew 3%, an improvement on last year’s flat sales.

The shares rose as much as 1.8% in London.

The shares rose 2.7% to 2,197 in late trade in London and have gained over 18% since Britain’s vote to leave the EU as the pound weakened.

“After a tough fiscal 2014 and 2015, management is starting to deliver on its promises,” wrote Olivier Nicolai, an analyst at Morgan Stanley.

Chief executive Ivan Menezes has returned Diageo to growth after two years of lacklustre results by reshuffling senior managers, cutting costs and boosting productivity.

Investors expect that the company will benefit from the weaker pound as profits made outside the UK will be worth more when translated back into sterling.

Diageo said currency swings will boost net sales this year by about £1.1bn (€1.3bn) and operating profit by £370m.

“We would expect to see positive momentum in North America and look to close some gaps in market share in 2017,” chief financial officer Kathy Mikells said on a call with reporters.

“We’ve printed a great set of results and are really looking forward to the next fiscal year,” she said. Sales in North America rose 3%, driven by whiskies such as Crown Royal and Bulleit.

Smirnoff vodka and Captain Morgan rum, which had dragged down results in previous periods as drinkers sought out smaller craft spirits, improved to post 2% gains, the company said.

In emerging markets, the picture was bleaker, with Brazil down 7% due to tax increases and subdued consumer demand, while greater China dipped 2% on continued declines in scotch.

The company, which advocated that the UK remain a member of the 28-nation bloc, has said that it is a priority to ensure the country continues to benefit from open access to the EU.

Diageo also maintained its sales forecast for the current financial year of mid-single-digit revenue growth. Organic figures exclude the impact of currency fluctuations and acquisitions.


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