Diageo, purveyor of Johnnie Walker and Guinness, has announced half year results to 31 December 2022.
It revealed that organic net sales (excluding the effect of acquisitions and currency moves) grew 9.4 per cent due to volume growth of 1.8 per cent and higher prices, with organic operating profit 9.7 per cent higher and margins modestly up.
Guidance remained unchanged: Over the medium-term, from fiscal 23 to fiscal 25, Diageo said it expects organic net sales to consistently grow within a range of 5 per cent to 7 per cent and organic operating profit to grow sustainably within a range of 6 per cent to 9 per cent.
“This is a solid performance from Diageo, underlining the strength and diversity of its brand portfolio,” commented Charlie Huggins, Head of Equities at Wealth Club. “While not immune from economic headwinds and inflationary pressures, Diageo looks better placed than most to weather the storm.
“It is much easier to raise prices on a bottle of Johnnie Walker than on a bottle of shampoo or deodorant. So Diageo ought to have more pricing power than most consumer goods peers. This is a key reason for its resilient margins.
“If the economy hits the rocks, Diageo may see some downtrading to less expensive brands. But it’s unlikely consumers will cut back significantly on alcohol. And long-term premiumisation trends are unlikely to abate.
“Overall, Diageo is demonstrating why it is considered a high quality long-term compounder. While short-term blips can’t be ruled out, investors who abide by the famous Guinness slogan – ‘Good things come to those who wait’ – could be rewarded.”
Brian McLister