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Diageo to Offload 19 Brands to Sazerac, Can This Aid Growth?
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Diageo plc (DEO - Free Report) has agreed to sell a chunk of its brands portfolio, including Seagram’s VO whiskey, to Sazerac — a privately-held American distiller — for $550 million. Backed by this latest deal, Diageo is likely to focus more on the fastest-growing premium spirits brands by resource optimization. This, in turn, is expected to drive growth and boost shareholders value. The transaction, which is subjected to regulatory approvals, is likely to close early next year.
Following the closure of the deal, net proceeds of roughly £340 million, after tax and transaction costs, will be returned to Diageo’s shareholders via share buybacks. This is additional to the share buyback authorization of about £2 billion, announced earlier. The transaction is also anticipated to generate nearly £110 million on disposal.
Apart from Seagram’s VO, the other 18 brands slated for divestiture are Myers’s, Seagram’s 83, Seagram’s Five Star, Relska, Yukon Jack, Parrot Bay, Popov, Goldschlager, Piehole, Stirrings, The Club, Scoresby, Black Haus, Peligroso, Grind, Romana Sambuca, Booth’s and John Begg. Notably, the owner of Johnnie Walker and Smirnoff brands — Diageo — has agreed to supply five of these brands each for ten years. However, the rest of the brands will be transferred in a year from completion.
Meanwhile, Diageo is benefiting from strong fundamentals, continuous innovation and focus on expansion. The company also explores opportunities to expand geographically through acquisitions. In this regard, Diageo’s acquisition of Casamigos — the fastest-growing premium tequila brand in the United States — in August 2017, is worth mentioning. Along with the existing Don Julio brand, the Casamigos buyout has bolstered Diageo’s market share in the tequila category.
These factors fueled Diageo’s results in fiscal 2018, wherein both sales and earnings improved year over year. While the bottom line gained from higher organic operating profit and reduced finance costs, the top line was driven by broad-based growth across all regions and categories, except for vodka.
Diageo expects synergies from its productivity initiatives to continue in fiscal 2019 as well. Also, organic net sales growth is anticipated to be in the mid-single digit. Driven by its productivity program, Diageo expects to deliver on its targeted operating margin expansion of 175 basis points for the three years (ending Jun 30, 2019).
We expect the aforementioned deal to further aid in accelerating Diageo’s growth across the fastest-growing spirits portfolio, thus generating higher sales and profitability.
In a month, shares of Diageo have gained 6.5% against the industry’s 4.7% decline. Currently, Diageo carries a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the broader Consumer Staples sector are:
Archer Daniels Midland Company (ADM - Free Report) delivered an average positive earnings surprise of 26.9% in the trailing four quarters. The company carries a Zacks Rank #2 (Buy).
Lamb Weston Holdings, Inc. (LW - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 11%.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Diageo to Offload 19 Brands to Sazerac, Can This Aid Growth?
Diageo plc (DEO - Free Report) has agreed to sell a chunk of its brands portfolio, including Seagram’s VO whiskey, to Sazerac — a privately-held American distiller — for $550 million. Backed by this latest deal, Diageo is likely to focus more on the fastest-growing premium spirits brands by resource optimization. This, in turn, is expected to drive growth and boost shareholders value. The transaction, which is subjected to regulatory approvals, is likely to close early next year.
Following the closure of the deal, net proceeds of roughly £340 million, after tax and transaction costs, will be returned to Diageo’s shareholders via share buybacks. This is additional to the share buyback authorization of about £2 billion, announced earlier. The transaction is also anticipated to generate nearly £110 million on disposal.
Apart from Seagram’s VO, the other 18 brands slated for divestiture are Myers’s, Seagram’s 83, Seagram’s Five Star, Relska, Yukon Jack, Parrot Bay, Popov, Goldschlager, Piehole, Stirrings, The Club, Scoresby, Black Haus, Peligroso, Grind, Romana Sambuca, Booth’s and John Begg. Notably, the owner of Johnnie Walker and Smirnoff brands — Diageo — has agreed to supply five of these brands each for ten years. However, the rest of the brands will be transferred in a year from completion.
Meanwhile, Diageo is benefiting from strong fundamentals, continuous innovation and focus on expansion. The company also explores opportunities to expand geographically through acquisitions. In this regard, Diageo’s acquisition of Casamigos — the fastest-growing premium tequila brand in the United States — in August 2017, is worth mentioning. Along with the existing Don Julio brand, the Casamigos buyout has bolstered Diageo’s market share in the tequila category.
These factors fueled Diageo’s results in fiscal 2018, wherein both sales and earnings improved year over year. While the bottom line gained from higher organic operating profit and reduced finance costs, the top line was driven by broad-based growth across all regions and categories, except for vodka.
Diageo expects synergies from its productivity initiatives to continue in fiscal 2019 as well. Also, organic net sales growth is anticipated to be in the mid-single digit. Driven by its productivity program, Diageo expects to deliver on its targeted operating margin expansion of 175 basis points for the three years (ending Jun 30, 2019).
We expect the aforementioned deal to further aid in accelerating Diageo’s growth across the fastest-growing spirits portfolio, thus generating higher sales and profitability.
In a month, shares of Diageo have gained 6.5% against the industry’s 4.7% decline. Currently, Diageo carries a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the broader Consumer Staples sector are:
The Chefs' Warehouse, Inc. (CHEF - Free Report) has an impressive long-term earnings growth rate of 19% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Archer Daniels Midland Company (ADM - Free Report) delivered an average positive earnings surprise of 26.9% in the trailing four quarters. The company carries a Zacks Rank #2 (Buy).
Lamb Weston Holdings, Inc. (LW - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 11%.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>