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Factors Likely to Influence Diageo's (DEO) FY23 Earnings
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Diageo Plc (DEO - Free Report) is scheduled to release preliminary results for fiscal 2023 on Aug 1. DEO has been benefiting from its diversified footprint, advantaged portfolio, strong brands and favorable industry trends of premiumization. The company has been witnessing solid business momentum, strong consumer demand and market share gains, which have been boosting its performance. Effective marketing and exceptional commercial execution bode well.
However, inflation, stemming from higher glass, ocean freight and transportation costs, has been a headwind for this Zacks Rank #4 (Sell) company. Currency headwinds are also concerning.
The alcoholic beverage company, which reports on a half-yearly basis, posted robust sales growth, operating margin expansion and productivity savings, which aided earnings in the first half of fiscal 2023.
DEO is anticipated to have retained the strength in its business in fiscal 2023 through constant premiumization efforts, recovery across markets, pricing actions and supply productivity savings.
DEO is well-poised for growth from effective marketing and extraordinary commercial execution. It is likely to invest strongly in marketing and innovation, and leverage its revenue growth management capabilities, including strategic pricing actions. This is likely to support DEO in the near and long terms. Gains from its marketing actions are expected to get reflected in its margin performance for fiscal 2023.
The company’s margin trends were favorable in the first half of fiscal 2023, thanks to its premiumization efforts, ongoing market recovery, pricing actions and disciplined cost management. Organic operating profit is likely to have benefited from the leverage in operating costs, driven by disciplined cost management. Supply productivity savings and price increases are also expected to have contributed to margin growth despite the impacts of higher cost inflation on the gross margin.
On the last reported earnings call, the company expected the fiscal 2023 organic operating margin to benefit from continued premiumization trends, everyday efficiencies and operating expense leverage, offset by strong investments in marketing.
Our model had predicted an operating margin, on a GAAP basis, of 29.7% for fiscal 2023, reflecting an expansion of 120 basis points (bps) from the prior-year reported figure. The operating margin, before pre-exceptional items, is expected to decline 110 bps year over year to 29.9%.
For fiscal 2023, DEO anticipated organic net sales growth across North America to normalize through the second half of fiscal 2023, whereas it reported double-digit growth in the year-ago period. In Europe, organic net sales growth is likely to moderate in the second half of fiscal 2023, as the company laps the on-trade channel re-opening and recovery in the prior year.
DEO anticipates continued organic net sales growth for the Asia Pacific, Latin America, and the Caribbean and Africa in the second half of fiscal 2023, although at a moderated pace than strong growth reported in fiscal 2022.
However, Diageo has been suffering from persistent inflationary pressures induced by higher commodity costs, particularly agave, energy expenses and supply disruptions. As a substantial portion of Diageo’s business comes from international operations, exchange rate fluctuations have been hampering its sales for a while.
Diageo expects to continue its revenue-management initiatives, including pricing actions, throughout fiscal 2023 to overcome the challenging inflationary environment.
In the second half of fiscal 2023, the company expects cost inflation pressure to persist and has been committed to investing in its brands to deliver sustainable growth. DEO expects marketing investment to increase more than sales growth in the second half of fiscal 2023. Our model estimates a 3.7% rise in marketing costs for the second half of fiscal 2023.
Looking for Lucrative Picks? Check These
Here are some companies you may want to consider this earnings season.
Molson Coors (TAP - Free Report) has an Earnings ESP of +8.94% and sports a Zacks Rank #1 (Strong Buy) at present. The company is expected to see top and bottom-line growth when it reports second-quarter 2023 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $3.2 billion, which suggests growth of 10.7% from the figure reported in the prior-year quarter.
The Zacks Consensus Estimate for Molson Coors’ quarterly earnings has moved up 4.7% in the past seven days to $1.55 per share. The consensus mark suggests growth of 30.3% from the year-ago quarter’s reported number. TAP has delivered an earnings surprise of 32.1%, on average, in the trailing four quarters.
e.l.f. Beauty (ELF - Free Report) has an Earnings ESP of +1.02% and a Zacks Rank #2 (Buy) at present. The company is expected to witness bottom-line growth when it reports first-quarter fiscal 2024 results. The Zacks Consensus Estimate for ELF’s quarterly earnings has been unchanged in the past 30 days at 58 cents per share. The consensus mark suggests 48.7% growth from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate e.l.f. Beauty’s quarterly revenues is pegged at $184.9 million, which indicates growth of 50.8% from the figure reported in the prior-year quarter. ELF has delivered an earnings surprise of 103.3%, on average, in the trailing four quarters.
Church & Dwight Co. (CHD - Free Report) has an Earnings ESP of +1.14% and a Zacks Rank #2 at present. The company is slated to witness top and bottom-line growth when it reports second-quarter 2023 results. The Zacks Consensus Estimate for CHD’s quarterly revenues is pegged at $1.42 billion, which suggests growth of 7.5% from the figure reported in the prior-year quarter.
The Zacks Consensus Estimate for Church & Dwight’s quarterly earnings has been unchanged in the past 30 days at 79 cents per share, suggesting growth of 4% from the year-ago quarter’s reported number. CHD has delivered an earnings surprise of 9.8%, on average, in the trailing four quarters.
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Factors Likely to Influence Diageo's (DEO) FY23 Earnings
Diageo Plc (DEO - Free Report) is scheduled to release preliminary results for fiscal 2023 on Aug 1. DEO has been benefiting from its diversified footprint, advantaged portfolio, strong brands and favorable industry trends of premiumization. The company has been witnessing solid business momentum, strong consumer demand and market share gains, which have been boosting its performance. Effective marketing and exceptional commercial execution bode well.
However, inflation, stemming from higher glass, ocean freight and transportation costs, has been a headwind for this Zacks Rank #4 (Sell) company. Currency headwinds are also concerning.
The alcoholic beverage company, which reports on a half-yearly basis, posted robust sales growth, operating margin expansion and productivity savings, which aided earnings in the first half of fiscal 2023.
Diageo plc Price, Consensus and EPS Surprise
Diageo plc price-consensus-eps-surprise-chart | Diageo plc Quote
Key Factors to Note
DEO is anticipated to have retained the strength in its business in fiscal 2023 through constant premiumization efforts, recovery across markets, pricing actions and supply productivity savings.
DEO is well-poised for growth from effective marketing and extraordinary commercial execution. It is likely to invest strongly in marketing and innovation, and leverage its revenue growth management capabilities, including strategic pricing actions. This is likely to support DEO in the near and long terms. Gains from its marketing actions are expected to get reflected in its margin performance for fiscal 2023.
The company’s margin trends were favorable in the first half of fiscal 2023, thanks to its premiumization efforts, ongoing market recovery, pricing actions and disciplined cost management. Organic operating profit is likely to have benefited from the leverage in operating costs, driven by disciplined cost management. Supply productivity savings and price increases are also expected to have contributed to margin growth despite the impacts of higher cost inflation on the gross margin.
On the last reported earnings call, the company expected the fiscal 2023 organic operating margin to benefit from continued premiumization trends, everyday efficiencies and operating expense leverage, offset by strong investments in marketing.
Our model had predicted an operating margin, on a GAAP basis, of 29.7% for fiscal 2023, reflecting an expansion of 120 basis points (bps) from the prior-year reported figure. The operating margin, before pre-exceptional items, is expected to decline 110 bps year over year to 29.9%.
For fiscal 2023, DEO anticipated organic net sales growth across North America to normalize through the second half of fiscal 2023, whereas it reported double-digit growth in the year-ago period. In Europe, organic net sales growth is likely to moderate in the second half of fiscal 2023, as the company laps the on-trade channel re-opening and recovery in the prior year.
DEO anticipates continued organic net sales growth for the Asia Pacific, Latin America, and the Caribbean and Africa in the second half of fiscal 2023, although at a moderated pace than strong growth reported in fiscal 2022.
However, Diageo has been suffering from persistent inflationary pressures induced by higher commodity costs, particularly agave, energy expenses and supply disruptions. As a substantial portion of Diageo’s business comes from international operations, exchange rate fluctuations have been hampering its sales for a while.
Diageo expects to continue its revenue-management initiatives, including pricing actions, throughout fiscal 2023 to overcome the challenging inflationary environment.
In the second half of fiscal 2023, the company expects cost inflation pressure to persist and has been committed to investing in its brands to deliver sustainable growth. DEO expects marketing investment to increase more than sales growth in the second half of fiscal 2023. Our model estimates a 3.7% rise in marketing costs for the second half of fiscal 2023.
Looking for Lucrative Picks? Check These
Here are some companies you may want to consider this earnings season.
Molson Coors (TAP - Free Report) has an Earnings ESP of +8.94% and sports a Zacks Rank #1 (Strong Buy) at present. The company is expected to see top and bottom-line growth when it reports second-quarter 2023 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $3.2 billion, which suggests growth of 10.7% from the figure reported in the prior-year quarter.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Molson Coors’ quarterly earnings has moved up 4.7% in the past seven days to $1.55 per share. The consensus mark suggests growth of 30.3% from the year-ago quarter’s reported number. TAP has delivered an earnings surprise of 32.1%, on average, in the trailing four quarters.
e.l.f. Beauty (ELF - Free Report) has an Earnings ESP of +1.02% and a Zacks Rank #2 (Buy) at present. The company is expected to witness bottom-line growth when it reports first-quarter fiscal 2024 results. The Zacks Consensus Estimate for ELF’s quarterly earnings has been unchanged in the past 30 days at 58 cents per share. The consensus mark suggests 48.7% growth from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate e.l.f. Beauty’s quarterly revenues is pegged at $184.9 million, which indicates growth of 50.8% from the figure reported in the prior-year quarter. ELF has delivered an earnings surprise of 103.3%, on average, in the trailing four quarters.
Church & Dwight Co. (CHD - Free Report) has an Earnings ESP of +1.14% and a Zacks Rank #2 at present. The company is slated to witness top and bottom-line growth when it reports second-quarter 2023 results. The Zacks Consensus Estimate for CHD’s quarterly revenues is pegged at $1.42 billion, which suggests growth of 7.5% from the figure reported in the prior-year quarter.
The Zacks Consensus Estimate for Church & Dwight’s quarterly earnings has been unchanged in the past 30 days at 79 cents per share, suggesting growth of 4% from the year-ago quarter’s reported number. CHD has delivered an earnings surprise of 9.8%, on average, in the trailing four quarters.
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