By Diageo, the renowned liquor maker behind popular brands such as Johnnie Walker whisky and Tanqueray gin, is set to release its financial results for the first half of fiscal 2024 on Tuesday. Here are the key details you should be aware of:
Sales Growth Forecast
According to a market consensus provided by the company, Diageo is expected to report flat organic net sales growth for the six months ending December 31.
Operating Profit Growth Forecast
Analysts estimate that organic operating profit growth will decline by 4.7%, accompanied by a 1.63 percentage point decrease in organic operating margin. The company had previously announced its anticipation of a decrease from the £3.16 billion ($4.01 billion) reported in the previous year.
Free Cash Flow Forecast
Diageo is predicted to report a free cash flow of $1.04 billion for the first half, as compiled by the company’s market consensus. This compares to the £817 million reported during the same period last year.
EPS Forecast
Underlying earnings per share, which excludes exceptional and other one-off items, are expected to reach 107.4 U.S. cents, compared to the 100.9 pence reported a year ago. This positive performance is supported by a lower share count resulting from ongoing share buybacks.
Guidance
Diageo revised its guidance in November after issuing a warning about a growth slowdown in the first half. The company attributed this slowdown to weaker performance in Latin America and the Caribbean, regions that account for almost 11% of net sales value.
Diageo’s Growth Outlook Amidst Uncertain Times
Diageo, a leading alcoholic beverages company, remains confident in its medium-term sales growth target despite the challenges posed by the current environment. The company expects its operating profit to align with organic net sales growth, a slight adjustment from its previous guidance of 6% to 9% growth in organic operating profit.
The impact of recent events, such as the Covid-19 pandemic, lockdowns, interest rate cuts, and furlough schemes, seems to have had little effect on Diageo’s stock performance. Over the past year, the company’s shares have declined by 17%, bringing them back to their 2018 level. This surprising resilience has led analysts at AJ Bell to note that it’s as if these external factors never happened.
Investors will be eagerly watching several key areas:
Premiumization Strategy
Diageo’s focus on “premiumization”, which involves highlighting the appeal and exclusivity of its super-premium-plus brands, will likely be a topic of debate. This strategy aligns with a broader trend in the luxury-goods industry. However, recent warnings about slowing consumer demand have raised concerns. AJ Bell questions if the emphasis on quality and higher prices may have gone too far, particularly considering the increasing pressures on consumer spending.
Managing Cost Inflation
Another area of interest for investors is how Diageo plans to address cost inflation. They will be looking for insights into the company’s approach to managing price increases and implementing cost efficiencies to counterbalance inflationary pressures.
Reporting in U.S. Dollars
In a noteworthy change, Diageo will now report its financial results in U.S. dollars instead of pounds. This shift reflects the company’s global presence and its commitment to international markets.
Despite the current challenges, Diageo remains optimistic about its growth prospects. Investors will closely scrutinize the developments in premiumization, cost management, and the impact of currency fluctuations. By strategically navigating these factors, Diageo aims to sustain its position as a leading player in the alcoholic beverages industry.
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