Diageo plc (LON:DGE) served up a rise in revenue and profits in the first half, buoyed by demand for gin and tequila.
The owner of Johnny Walker and Smirnoff labels delivered net sales of £6.5bn the six months to the end of December, representing 4% organic growth or a 2% increase on a reported basis from a year ago.
READ: Diageo to reopen two 'lost' Scottish whisky distilleries to meet strong single malt demand
Tequila sales surged by 58% while gin sales grew 15%, helping Diageo to achieve a 6% increase in pre-tax profit to £2.2bn.
Sales of Scotch whisky rose 3%, while vodka sales fell 6%.
Chief executive Ivan Menezes said the first half results “demonstrate continued positive momentum from the consistent and rigorous execution of our strategy”.
“We have increased investment behind our brands and expanded organic operating margin through our sustained focus on driving efficiency and effectiveness across the business,” he said.
Menezes added that the group is confident it can achieve “consistent mid-single digit” top line growth and 175 basis points of organic operating margin improvement in the three years ending 30 June 2019.
However, the company warned that it expects full year results to take a hit from foreign exchange headwinds. It anticipates a £460mln impact on net sales and a £60mln knock to operating profits.
The interim dividend was lifted by 5% to 24.9p each.
READ: Diageo falls as it says first-half sales growth to be hit by China, India factors, although full year expectations unchanged
Richard Hunter, head of markets at Interactive Investors, said the dividend yield remains relatively low at 2.5% and there are "certain areas of the portfolio which will need continued refreshment, such as vodka sales in the US".
"There is also a general feeling that the shares are beginning to look a little heavy in terms of valuation, although growth such as this reported today should allay some of those concerns," he said.
Shares fell 2.3% to 2,542p in morning trading.
Liberum repeated a ‘sell’ rating, saying organic sales and underlying pre-tax profit missed consensus forecasts.
“Organic sales growth in North America remains lacklustre at 2.5% with vodka continuing to weigh on growth despite an 8% increase in marketing while Canada also slowed,” it said.