Shares in Diageo were as flat as the champagne that failed to sell in the quantities forecast as they fell in the wake of full-year results.
Moet Hennessy was singled out as the laggard in the drinks maker’s portfolio, which includes famous names such as Johnnie Walker, Tanqueray and Guinness.
The promise of a £2bn share buyback, which would normally provide a tonic, failed to get the stock fizzing as it drifted down 1.4%, wiping around £960mln from Diageo’s market value.
A bout of profit-taking, following a 20% run-up in the share price ahead of the prelims, was also provided as an explanation for Thursday’s decline, as was a cagey outlook statement.
Neil Wilson, analyst at Markets.com, reckoned a "few chips" had been taken off the table following the results.
READ: Diageo ready to hit the accelerator after years of sluggish growth, Goldman Sachs believes
Other than the Hennessy miss, and it's fair to say not every analyst was negative on the French drinks brand, the numbers passed muster.
Operating profit for the year increased 3.7% to £3.7bn on net sales of £12.1bn, a 0.9% increase on 2017, despite currency headwinds.
On an organic basis, net sales rose 5% and operating profits rose 7.6%, supported by a 78 basis points increase in operating margins.
Diageo’s board also recommend a final dividend for 2018 of 40.4p, up 5% on the previous year.
Danny Cox, of investment firm Hargreaves Lansdown, is a fan of its consistency in that regard.
"The group has generated over a billion pounds of free cash flow in each of the last fifteen years, supporting an unbroken record of dividend growth, stretching back into the last millennium.
"With margins set to rise and current currency rates posing less of a headwind to growth, the outlook for the group seems encouraging."
Gin and tequila the tipples of choice
Gin and tequila were the strongest performers in the period with net sales up 16% and 40% respectively. Gin, which represents 4% of total net sales, continued to grow in popularity in Continental Europe while Tequila was boosted by strong demand for Don Julio in the US and Mexico. Tequila accounts for 3% of total net sales.
Scotch is Diageo’s biggest category, representing 25% of total net sales, and was up 2% with growth in North America, Asia Pacific and Latin America and the Caribbean partially offset by declines in Africa and Europe.
But Vodka, the second largest category at 11% of net sales, fell by 1% due to a weak performance of Smirnoff in the US, Europe and South Africa. However, this marked an improvement on the 4% drop reported last year.
Outlook unchanged
Chief executive Ivan Menezes has been expanding the business with the acquisition of Vermouth brand Belsazar in March and a £150mln investment in the Scotch whiskey industry in April.
“The changes we have made in the business and the shifts in culture we continue to drive, ensure we are well placed to capture opportunities and deliver sustained growth,” said chief executive Ivan Menezes.
“Our financial performance expectations are unchanged and we expect to continue to invest in the business to deliver our mid-term guidance of consistent mid-single digit organic net sales growth and 175bps of organic operating margin expansion for the three years ending 30 June 2019."
Dividend at risk?
However, the group warned that it expects currency headwinds to impact net sales by about £70mln and operating profits by about £10mln.
Mike van Dulken, Head of Research at Accendo Markets, said this could have a knock-on effect on profits and thus cash-flow and potentially dividends.
"Today’s announcement may have seen the final dividend raised by 4.9% but for those buying the shares today, for the future, the dividend growth may be much less by the time they come to be paid for taking the risk of buying the shares today," he said.