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Highlights

  • DEO's H1FY24 net sales reached USD 11.0 billion, declining by 1.4% due to forex impacts and organic sales dip
  • DEO reported a net margin of 21.4% and an ROE of 22.4%, surpassing industry medians
  • Diageo garnered 101 medals at the San Francisco World Spirits Competition
  • Diageo aims to exceed its USD 1.5 billion productivity target by FY24 end and is committed to achieving USD 2.0 billion in productivity savings from FY25 to FY27

Diageo plc (NYSE: DEO), a UK-headquartered global company, specializes in manufacturing and distributing beverages. With a diverse portfolio of around 200 brands spanning spirits and beer, it operates in 180 countries across segments including Latin America, North America, Europe, the Caribbean, Asia Pacific, Africa, and Supply Chain and Procurement (SC&P).

In the first half of fiscal year 2024, DEO posted net sales of USD 11.0 billion, marking a 1.4% decline. This decrease stemmed mainly from a USD 167 million unfavorable foreign exchange impact and a USD 67 million organic net sales drop (0.6%). Operating profit fell by 11.1% to USD 3.3 billion, with a contraction of 329 basis points in the operating profit margin, influenced by lower organic operating margins and the negative impact of exceptional operating items.

Due to higher finance charges, reduced organic operating profit, and exceptional items, DEO’s basic earnings per share (EPS) decreased by 17.2% to 98.6 cents. On a positive note, net cash flow from operations rose by USD 674 million to USD 2.1 billion, and free cash flow increased by USD 498 million to USD 1.5 billion.

Moreover, DEO reported a higher net margin of 21.4% and a higher return on equity of 22.4% compared to the industry median of 7.8% and 6.1%, respectively.

Recent business update

Diageo announced on May 17, 2024, that its extensive range of brands achieved a total of 101 medals at the 24th Annual San Francisco World Spirits Competition. These awards cover a wide array of categories such as tequila, whiskey, rum, gin, vodka, and ready-to-drink beverages. The results underscore Diageo's dedication to innovation and quality, with the company receiving 30 double gold and 24 gold medals, highlighting its leadership in redefined categories and esteemed Scotch whisky brands.

Company outlook

Looking ahead to FY24, Diageo foresees a steady improvement in organic net sales growth in the second half compared to the first, driven by expected improvements in North America despite ongoing consumer uncertainties. However, challenges are anticipated in Latin America and the Caribbean (LAC), with projected organic net sales declines of -10% to -20% due to persistent macroeconomic pressures.

On the other hand, Europe, Asia Pacific, and Africa are expected to show growth despite ongoing economic volatility. Diageo foresees a decline in organic operating profit in the second half of FY24 compared to the previous year, albeit less pronounced than in the first half. The company will prioritize productivity initiatives and revenue growth management while maintaining investments in marketing. Moreover, Diageo aims to exceed its USD 1.5 billion productivity target by the end of FY24 and is committed to achieving USD 2.0 billion in productivity savings from FY25 to FY27, supported by strategic investments including their supply chain agility program.

Stock performance

DEO's stock price has declined by 11.35% in the last three months and 9.84% over the past six months. Currently, it is trading near the lower band of its 52-week low of USD 131.04 and 52-week high of USD 179.78.

 

Note 1: Past performance is not a reliable indicator of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is June 13, 2024. The reference data in this report has been partly sourced from EODHD/Others.