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Diageo (DEO) 1H FY22 Earnings & Sales Improve on Robust Trends

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Diageo plc (DEO - Free Report) reported interim results for the first half of fiscal 2022, ended Dec 31, 2021, wherein pre-exceptional earnings per share improved 22.5% year over year to 85.6 pence (in local currency). This was backed by robust sales growth, operating margin expansion and productivity savings, partially offset by higher taxation and adverse currency impact.

DEO’s stock rose 2.8% yesterday, driven by robust first-half fiscal 2022 results, reflecting continued recovery in the on-trade channel, strong consumer demand in the off-trade and market share gains.

Shares of this currently Zacks Rank #3 (Hold) player have gained 25.3% in the past year compared with the industry’s growth of 6.9%.

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1H FY22 Highlights

On a reported basis, net sales increased 15.8%, driven by strong organic growth, partly negated by adverse currency effects. Organic net sales were up 20% year over year. Diageo witnessed double-digit organic sales growth across all five regions.

Organic sales in the first half of fiscal 2022 benefited from robust double-digit growth across all regions, backed by an effective marketing and exceptional commercial execution. Organic sales were also aided by a sustained recovery in the on-trade channel, continued strong consumer demand in the off-trade and market share gains. Improved market share was supported by favorable industry trends, with spirits expanding share of the total beverage alcohol and continued premiumization efforts.

Diageo plc Price and Consensus

Diageo plc Price and Consensus

Diageo plc price-consensus-chart | Diageo plc Quote

Organic volume improved 9%. Price/mix grew 11%, contributing to more than half of the net sales growth. Price/mix growth was driven by strength in premium plus brands, recovery in on-trade channel in North America and Europe, and a partial Travel Retail recovery.

In North America, Diageo’s largest market, sales accelerated 13% on recovery in on-trade, resilient consumer demand in the off-trade and share gains. Moreover, DEO witnessed sales growth of 27% in Europe, 13% in the Asia Pacific, 23% in Africa and 45% in Latin America and the Caribbean. Strong growth in Greater China and India primarily aided sales growth in the Asia Pacific, while sales continued to recover across the rest of the region. Growth across all markets, particularly in Nigeria and East Africa, aided sales growth in Africa.

Diageo also reported substantial growth across most categories, with growth of 56% slated for tequila, 27% for scotch and 22% for beer. Gains in the beer business were driven by growth of Guinness in Ireland, Great Britain and Africa. DEO’s premium plus brands contributed 56% to reported net sales and 74% to organic net sales growth.

Reported operating profit improved 22.5% owing to an improved organic operating profit. Reported operating margin expanded 190 basis points (bps). Organic operating profit rose 24.7% year over year, with organic operating margin expanding 131 bps. Organic operating profit gained from growth across all geographies. Organic operating margin growth was aided by a strong recovery in gross margin and operating cost leverage along with higher marketing investments. Moreover, growth was driven by supply productivity savings and price increases, which more than offset the higher cost inflation.

Financials

In the first half of fiscal 2022, Diageo delivered net cash from operating activities of £1.9 billion, marking a decline of £0.1 billion year over year. DEO reported strong free cash flow of £1.6 million, down £0.2 billion from the last-year level due to lapping of strong working capital benefits in the first half of fiscal 2021.

Diageo remains committed to its disciplined approach to capital allocation, primarily to enhance its shareholder value. DEO increased the interim dividend 5% to 29.36 pence per share. This reflects its strong liquidity position and confidence in the long-term health of its business.

Additionally, Diageo completed £0.5 billion of share repurchases as part of the return of capital program of up to £4.5 billion. As of December 2021, DEO completed £1.9 billion of its £4.5 billion program. DEO plans to accelerate the completion of its return of capital program, which is now expected to be concluded in fiscal 2023.

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United Natural, a leading distributor of natural, organic and specialty food and non-food products in the United States and Canada, presently flaunts a Zacks Rank #1 (Strong Buy). The UNFI stock has rallied 34% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for United Natural’s sales and EPS for the current financial year suggests growth of 5.1% and 8.8%, respectively, from the corresponding year-ago levels. UNFI has a trailing four-quarter earnings surprise of 35.4%, on average.

Helen of Troy, a leading consumer products player, presently sports a Zacks Rank of 1. HELE has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of HELE have declined 15.7% in the past year.

The Zacks Consensus Estimate for Helen of Troy’s sales and EPS for the current financial year suggests respective growth of 0.8% and 0.6% from the corresponding year-ago period’s reported figures. HELE has an expected EPS growth rate of 8% for three to five years.

Medifast, a leading manufacturer and distributor of clinically-proven healthy living products and programs, presently has a Zacks Rank #2 (Buy). Shares of MED have declined 19.4% in the past year.

The Zacks Consensus Estimate for Medifast’s sales and EPS for the current financial year suggests respective growth of 63% and 49.3% from the corresponding year-ago period’s reported figures. FLO has a trailing four-quarter earnings surprise of 17.3%, on average.