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Know the Diageo (DEO) Stock In and Out Before Investing

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Diageo plc (DEO - Free Report) is well-poised for growth from effective marketing and exceptional commercial execution. Diageo expects to invest strongly in marketing and innovation, and leverage its revenue growth management capabilities, including strategic pricing actions. This is likely to support the company’s momentum in the near and long terms.

The company has been benefitting from a sustained recovery in the on-trade channel, strong consumer demand in the off-trade channel and market share gains.

Diageo is anticipated to retain the strong business momentum on continued premiumization efforts and favorable industry trends, particularly in the spirits category. DEO’s organic net sales were up 21.4% year over year in fiscal 2022. Recovery in the on-trade channel in North America and Europe, and the partial recovery in Travel Retail have been aiding the price/mix. The company’s positive mix also resulted from the robust performance of super-premium-plus brands, particularly scotch, tequila and Chinese white spirits.

DEO’s margin trends were favorable in fiscal 2022, owing to its premiumization efforts, recovery in markets, pricing actions and supply productivity savings, which mostly offset the cost inflation. The company delivered £380 million of productivity savings in fiscal 2022, driven by COGS productivity and marketing effectiveness. The company’s operating profit improved 18.2% in fiscal 2022, driven by robust organic operating profit growth.

Although Diageo expects the operating environment to be challenging in fiscal 2023, it remains confident in the resilience of its business and its ability to navigate through the headwinds. The company is confident about the long-term growth potential of the total beverage alcohol sector and expects to expand its value share by 50% in the sector to 6% by 2030.

Diageo is on track to deliver on its medium-term guidance for fiscal 2023-2025, wherein it targets organic sales growth of 5-7% and organic operating profit rise of 6-9%.

For fiscal 2023, the company expects net sales growth across North America, Europe and the Asia Pacific. However, the growth rate is likely to moderate from the fiscal 2022 level due to the robust on-trade recovery witnessed in fiscal 2022. It anticipates continued organic operating margin growth in fiscal 2023, driven by strong premiumization trends and operating leverage despite continued investment in marketing. It expects an effective interest rate of 3.5% for fiscal 2023.

However, Diageo has been witnessing inflationary pressures, driven by higher commodity costs, particularly agave, energy expenses and supply disruptions. Higher commodity costs, particularly agave, energy expenses and supply disruptions, have been key headwinds. As a substantial portion of Diageo’s business comes from international operations, exchange rate fluctuations have been hampering its sales.

DEO also remains susceptible to adverse currency rates. While the weakening of sterling against the U.S. dollar and some impacts of emerging market currencies look favorable, Diageo expects adverse currency impacts of hyperinflationary economies, primarily Turkey.

Wrapping Up

Diageo, which shares space with Constellation Brands (STZ - Free Report) , Coca-Cola Company (KO - Free Report) and PepsiCo Inc. (PEP - Free Report) , has been gaining strength from premiumization, innovation and digital initiatives.

A Synopsis of Other Stocks

Constellation Brands reported the third straight quarter of an earnings and sales beat in first-quarter fiscal 2023. Results benefited from strong consumer demand for its portfolio of premium, high-end products, and double-digit sales growth in the beer business.

Constellation Brands’ beer business depletion volume benefited from strength in Modelo Especial and resilient growth in Corona Extra. High-end Power Brands, including The Prisoner Brand Family, Kim Crawford and Meiomi, acted as key growth drivers for STZ. Management issued an upbeat fiscal 2023 view.

Coca-Cola’s top and bottom lines surpassed estimates for the sixth straight quarter. The company’s results reflect elasticity in the marketplace despite the ongoing global challenges. KO’s sales gained from revenue growth across its operating segments, aided by an improved price/mix and an increase in concentrate sales.

Coca-Cola benefited from underlying share gains in both at-home and away-from-home channels. It raised the organic revenues and comparable earnings per share growth guidance for 2022. KO is poised to gain from innovations and accelerating digital investments.

PepsiCo’s revenues and earnings beat the Zacks Consensus Estimate and improved year over year in the second quarter. This marked the 16th straight quarter of sales beat. PEP benefits from the resilience and strength of global beverage and convenient food businesses.

PepsiCo continues to benefit from investments in brands, go-to-market systems, supply chains, manufacturing capacity and digital capabilities to build competitive advantages. It also gained from the resilience and strength in the global beverage and convenient food businesses. It expects to benefit by delivering convenience, variety and value proposition to customers through its brands. PEP raised its revenue view for 2022.


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