Drinks giant Diageo PLC (LON:DGE) delivered organic net sales growth slightly above expectations in the year to the end of June.
There was also good news on the margin front, with the group raising its margin improvement objective over the three years ending June 2019 from one percentage point to 1.75 percentage points (or 175 basis points).
Analysts had expected year-on-year organic net sales growth of 4.2%, but the Johnnie Walker whisky producer delivered growth of 4.3% or organic volume growth of 1.1%.
The net sales growth rate was, however, a tad down from the first half performance of +4.4%.
Diageo said it continues to expect mid-single digit percentage year-on-year organic net sales growth in the three years to June 2019.
Reported net sales of £12.05bn were up 15% on the previous year’s £10.49bn, helped by favourable exchange rate movements.
Profit before tax climbed to £3.56bn from £2.86bn the previous year.
Earnings per share advanced to 105.5p from 89.1p the year before, and were a half penny above the consensus forecast.
Income investors will raise a glass to the news that the final dividend has been hiked by 5%, bringing the full year pay-out up to 62.2p, up on the previous year’s 59.2p.
The board has also approved a share buy-back programme of up to £1.5bn in the current financial year.
“We have delivered consistent strong performance improvement across all regions and I am pleased with progress in our focus areas of US Spirits, scotch and India,” said Ivan Menezes, Diageo’s chief executive.
“Diageo is a strong company today and we are confident in our ability to deliver sustainable growth. We are raising our productivity goal to £700 million with two thirds being reinvested in the business,” Menezes declared.
“These numbers are encouraging news for Diageo investors,” said Steve Clayton, manager of the Hargreaves Lansdown Select funds.
“Currency movements gave the company a big helping hand, but the underlying progress was strong too.
“Underlying sales growth was strongest in Latin America, up 9%, with North America and Asia the laggards, but still 3% ahead as the company chalked up positive results in all territories. News that margins are seen rising more strongly than first expected has to be good news for future earnings and dividend potential,” he added.
Liberum Capital Markets, which is a seller of Diageo, noted that while organic sales growth in the second half (2H) of the year of 4.2% beat the consensus by 26 basis points (100 basis points = one percentage point), organic volume growth of 0.4% was 140 basis points (bps) below the consensus forecast.
The organic price/mix increased 3.8%, beating the consensus by 166 bps, the broker added.
“Latin America & Caribbean was particularly strong with 9.8% organic growth. 2H'17 Adj. operating profit margin increased 83 bps to 27.3% missing consensus by (21) bps. 2H'17 underlying basic EPS of 46.5p beat expectations by 6.6%,” Liberum said.
“Reported 2H’17 sales of £5,629mln beat consensus of £5,535mln by 1.7%. The organic beat was helped by a 10.4% FX impact and increased 0.5% due to scope,” Liberum observed.
The broker continues to prefer Campari to Diageo within the spirits sector “for its above average organic growth and proven M&A track record”.
Diageo shares rose 5.3% to 2,393.5p in early deals.
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