Diageo PLC (DEO) on Thursday reported improved earnings for the year and raised its target for profit margin growth as the world’s largest spirits maker benefited from strong currency tailwinds and logged broad-based sales growth across its major regions.
For the year ended June 30, the maker of Johnnie Walker whisky, Guinness beer and Smirnoff vodka reported its operating profit, excluding one-time items, climbed 20% to 3.6 billion pounds ($4.73 billion) while per-share earnings before one-time items climbed to £1.09 from 89.4 pence.
On an organic basis, which strips out currency movements and acquisitions, net sales were up 4% to GBP12.05 billion from GBP10.49 billion. Volumes edged up just 1% meaning much of the sales lift came from Diageo raising prices. Its operating margin on an organic basis climbed by 37 basis points.
Following a lackluster couple of years, Diageo has recently made strides towards turning around its performance in North America, its largest and most profitable market. More broadly, the company is using data to make better choices about how to allocate its marketing budget and has been working on stripping out cost through its business in a bid to function more efficiently.
On Thursday the company raised its cost-cutting target to GBP700 million from GBP500 million and its margin expansion target to 175 basis points from 100 basis points, which it says it will reach by fiscal 2019. The company announced a GBP1.5 billion share buyback, to be paid to investors over fiscal 2018.
Including the impact of currency and acquisitions, Diageo reported a net profit of GBP2.66 billion for the year compared with GBP2.24 billion a year earlier, on net sales that rose 15% to GBP12.05 billion.
In North America, organic sales were up 3% from a year ago, helped by a strong performance in ready-to-drink beverages which grew volumes 4%. Volumes of beer dropped 1% as Americans continue to show a preference for wine and spirits over beer.
In India, one of Diageo’s biggest markets, volumes declined by 2% organically following a ban on liquor being sold near highways. However, net sales rose 2% helped by domestic Indian whiskey and Scotch.
Overall, the company posted a 5% rise in organic sales of Scotch, its largest and most profitable category, driven by gains in Johnnie Walker and Buchanan’s. Beer, Diageo’s second biggest category, grew 2% helped by cheaper beers in Africa like Satzenbrau in Nigeria and Senator in Kenya. But vodka, which makes up 12% of Diageo’s sales, declined by 4% driven by weakness in all regions other than Africa.