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Diageo Cheers Investors With Improving Alcohol Sales in 1H21
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Shares of Diageo plc (DEO - Free Report) have jumped 6.3% yesterday after the alcohol-beverage maker said that its fiscal 2021 performance is off to a good start. The gradual reopening of the on-trade channels, including bars and restaurants across majority of the company’s markets coupled with solid off-trade demand and sturdy execution, have been tailwinds.
Management further cited that it has witnessed sequential growth across all regions, with the U.S. business surpassing expectations on resilient consumer demand and robust spirits category. In the United States, higher retailer confidence is aiding the off-trade channel, while the on-trade channel remains open in all the states involving certain capacity restrictions. In Europe, the company is experiencing robust off-trade demand whereas the on-trade channel has now reopened on easing of lockdowns across most countries.
While the on-trade channel has been recovering in China, the return of larger banqueting occasions is happening at a slower pace. Moreover, the on-trade channel has also started reopening in Africa, India, Latin America and the Caribbean. However, Diageo forecasts the speed of recovery in these markets to be more gradual. Furthermore, the travel retail remains severely affected. Overall, Diageo is witnessing positive impact of the measures it made to recover on-trade. The company has been using consumer insights and marketing effectiveness equipment to make prudent investments in the areas of innovation, e-commerce and new opportunities like at-home occasions.
All said, management projects first-half fiscal 2021 organic net sales and operating profit to improve sequentially from second-half fiscal 2020. However, it continues to anticipate lower organic net sales and margin dilution in comparison to the year-ago period. We note that net sales and operating profit declined 8.7% and 47.1%, respectively, on a reported basis owing to organic declines, during fiscal 2020. Further, organic sales fell 8.4% as top-line gains in North America were more than offset by declines across all regions.
On the fiscal 2020 earnings call, management cautioned that results for the first half of fiscal 2021 are likely to reflect significant impacts of the pandemic. Additionally, the company expected operating margin to improve sequentially in the first half of fiscal 2021 compared with the peak effects of the pandemic’s impact experienced in the fourth quarter of 2020. It also plans to increase marketing investments as demand recovers.
A glimpse of the company’s share price in the past three months reveals that it has gained 2.4% compared with the industry’s 7.1% rally. Diageo currently displays a Zacks Rank #5 (Strong Sell).
Monster Beverage (MNST - Free Report) , also a Zacks Rank #1 stock has an expected long-term earnings-growth rate of 12%.
Boston Beer (SAM - Free Report) has delivered an earnings surprise of 26.1%, on average, in the trailing four quarters. The company currently has a Zacks Rank #1.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.3% per year.
These 7 were selected because of their superior potential for immediate breakout.
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Diageo Cheers Investors With Improving Alcohol Sales in 1H21
Shares of Diageo plc (DEO - Free Report) have jumped 6.3% yesterday after the alcohol-beverage maker said that its fiscal 2021 performance is off to a good start. The gradual reopening of the on-trade channels, including bars and restaurants across majority of the company’s markets coupled with solid off-trade demand and sturdy execution, have been tailwinds.
Management further cited that it has witnessed sequential growth across all regions, with the U.S. business surpassing expectations on resilient consumer demand and robust spirits category. In the United States, higher retailer confidence is aiding the off-trade channel, while the on-trade channel remains open in all the states involving certain capacity restrictions. In Europe, the company is experiencing robust off-trade demand whereas the on-trade channel has now reopened on easing of lockdowns across most countries.
While the on-trade channel has been recovering in China, the return of larger banqueting occasions is happening at a slower pace. Moreover, the on-trade channel has also started reopening in Africa, India, Latin America and the Caribbean. However, Diageo forecasts the speed of recovery in these markets to be more gradual. Furthermore, the travel retail remains severely affected. Overall, Diageo is witnessing positive impact of the measures it made to recover on-trade. The company has been using consumer insights and marketing effectiveness equipment to make prudent investments in the areas of innovation, e-commerce and new opportunities like at-home occasions.
All said, management projects first-half fiscal 2021 organic net sales and operating profit to improve sequentially from second-half fiscal 2020. However, it continues to anticipate lower organic net sales and margin dilution in comparison to the year-ago period. We note that net sales and operating profit declined 8.7% and 47.1%, respectively, on a reported basis owing to organic declines, during fiscal 2020. Further, organic sales fell 8.4% as top-line gains in North America were more than offset by declines across all regions.
On the fiscal 2020 earnings call, management cautioned that results for the first half of fiscal 2021 are likely to reflect significant impacts of the pandemic. Additionally, the company expected operating margin to improve sequentially in the first half of fiscal 2021 compared with the peak effects of the pandemic’s impact experienced in the fourth quarter of 2020. It also plans to increase marketing investments as demand recovers.
A glimpse of the company’s share price in the past three months reveals that it has gained 2.4% compared with the industry’s 7.1% rally. Diageo currently displays a Zacks Rank #5 (Strong Sell).
Check Out These Hot Beverage Stocks
Molson Coors Beverage (TAP - Free Report) has an expected long-term earnings-growth rate of 6% and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Monster Beverage (MNST - Free Report) , also a Zacks Rank #1 stock has an expected long-term earnings-growth rate of 12%.
Boston Beer (SAM - Free Report) has delivered an earnings surprise of 26.1%, on average, in the trailing four quarters. The company currently has a Zacks Rank #1.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.3% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>