By Pádraig Hoare
Growth of Guinness in Ireland and the UK has helped Diageo increase sales by 4% in Europe as the firm said operating profits increased by 4% to £3.7bn (€4.16bn) for the year.
Shares in the world’s biggest spirits firm fell by almost 1% despite Guinness net sales increasing by 8% in the UK and 2% in Ireland, while there was double-digit growth for Baileys in the US.
Signature vodka brand Smirnoff saw a drop of 2% in British and north American sales. Smirnoff also had a “weak performance” in central Europe, the firm said, while Baileys had a “soft performance”.
There was a stronger performance by Smirnoff in South America, as it saw double-digit growth driven by Argentina, Mexico and Brazil. Gin represents 4% of Diageo’s net sales and its sales increased by 16% in all regions. Tanqueray and Gordon’s in Europe were the largest contributors, the firm said.
The firm said net sales in Ireland were up 3%, led by Guinness which increased 2% driven by Hop House 13 lager. In spirits, net sales were up 14% largely driven by strong performance in Gordon’s and Tanqueray, it said.
In the UK, net sales grew 8%, helped by Tanqueray double-digit net sales growth. Guinness net sales rose 8%, while scotch net sales were up 6% mainly driven by scotch malts and Johnnie Walker.
The firm announced a £2bn share buyback programme as it reported net sales of £12.2bn, up 5% on an organic basis. The company has joined other consumer-product companies, such as Unilever and Nestle, in adopting shareholder-friendly measures as activist investors take a growing interest in the sector.
While looking at “‘bolt-on acquisitions” and making other investments in the business, Diageo will also continue to look at returning cash to shareholders as opportunities arise, chief financial officer Kathy Mikells said.
Although cost cuts boosted Diageo’s operating margin, the company said that measure was held back by higher marketing spending, which also weighed on brewer Anheuser-Busch InBev, which splashed out on World Cup advertising.
Earnings rose 7% to $5.57bn (€4.77bn) on an adjusted basis before taxes, interest, taxes, depreciation, and amortisation in the second quarter, said the producer of Budweiser and Stella Artois.
Anheuser-Busch said it is trying to become more agile by shifting to six geographic zones from nine, part of an ongoing effort to integrate SabMiller, which it bought in 2016 for more than €86bn).
Additional reporting Bloomberg
