Diageo (NYSE: DEO, London: DGE), the world’s biggest producer of al coholic drinks, boasts an impressive list of well-known brands, including Guinness, Red Stripe, Tusker, Johnny Walker, Bushmills, Crown Royal, Cap tain Morgan, Tanqueray, Baileys, Smirnoff, and Ciroc.
London-based Diageo’s performance has been as heady as its spirits. The company reported in April that first half fiscal 2012 earnings increased 16 percent to $2.2 billion. Strong performance of Johnnie Walker in all markets, coupled with accelerated expansion of the company into emerging markets around the world, helped offset sales declines in troubled Southern Europe an markets.
Net revenue (i.e., total revenue minus excise duties) reached $9.2 billion in the first half of fiscal 2012, up from $8.3 billion a year ago. Gross prof it climbed 11.7 percent year over year to $5.7 billion, from $5.1 billion a year ago.
The company said consumer trends continued to be “robust” in Latin Amer ica, matched by price increases and consumers choosing more expensive products. Management expects to widen its operating profit from $2.8 billion in 2011 to $3.2 billion in 2012. It also expects earnings per share of $3.92 in 2012, up from $3.11 in 2011, in line with analysts’ estimates.
Diageo is pursuing an aggressive strategy of expansion in developing markets. Notably, it plans to penetrate Brazil’s $4.4 billion alcohol market by purchasing Brazil-based Ypioca for $453 million. Ypioca is Brazil’s third-largest producer of cachaca, which is distilled from sugar cane and accounts for four out of every five spirit sold in this vast country.
Latin American and Caribbean markets represented Diageo’s fastest grow ing during the past nine months, at roughly 18 percent sales growth com bined. The company is now in talks to purchase the world’s biggest tequila brand Jose Cuervo, for more than $2 billion from its family owners.
The company recently announced that it had bought Cabin Fever Maple Flavored Whiskey, allowing the company to tap growing demand for fla vored whiskey. Diageo plans to start selling Cabin Fever Whiskey this fall.
The company also announced a $1.2 billion investment program in Scotch whiskey production. Diageo plans to construct a new malt distillery and warehouses, as well as expand existing ones. In another bid to fuel growth, the company this year launched a major marketing push toward women.
The European and North American markets together comprise about 60 percent of Diageo’s sales, but management has determined that these devel oped markets will be unable to drive substantial, long-term growth. The com pany plans to reduce the total revenue generated from these two mature mar kets to 50 percent by 2015. Check out Top Growth Stocks to Own Now for more growth stocks picks.
John Persinos is Editorial Director at Investing Daily.
