Diageo plc (DEO Quick QuoteDEO - Free Report) reported interim results for the first half of fiscal 2025, which ended Dec. 31, 2024, wherein pre-exceptional earnings per share declined 9.6% year over year to 97.7 cents. The decline was due to significantly lower Moët Hennessy contribution and unfavorable currency rate.

On a reported basis, net sales of $10.9 billion declined 0.6% year over year, due to unfavorable currency impacts, partly offset by improved organic sales. Organic net sales increased 1% year over year, marking the company’s return to organic sales growth. The increase was led by a favorable price/mix of 120 basis points (bps), offset by a 0.2% volume decline.

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The company has withdrawn its medium-term guidance due to ongoing macroeconomic and geopolitical uncertainties in several markets hurting the pace of recovery.

Shares of the Zacks Rank #4 (Sell) company have lost 3.1% in the past three months compared with the industry’s 14.3% decline.

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Diageo’s 1H25 Highlights

Organic net sales growth was driven by gains in four out of five regions, including North America. In North America, Diageo’s largest market, sales rose 0.2% year over year on an organic basis, marking the region’s return to growth. Additionally, organic net sales improved 0.7% in Europe, 8.9% in Africa and 5% in LAC. On a year-over-year basis, DEO witnessed an organic net sales decline of 2.6% in Asia Pacific.

The decline in Asia Pacific was due to a weak macroeconomic environment in Greater China, challenging trading conditions in Southeast Asia and the impact of last year's Shui Jing Fang supply replenishment.

The reported operating profit declined 4.9% year over year due to lower organic operating profit and the negative impacts of currency rates. The reported operating margin contracted 132 bps.

Organic operating profit fell 1.2% year over year, with the organic operating margin contracting 69 bps due to continued investments in overheads, offset by lower marketing spending and positive gross margin expansion.

DEO’s Financials

At the end of the first half of fiscal 2025, Diageo delivered net cash from operating activities of $2.3 billion. DEO reported a strong free cash flow of $1.7 billion, driven by disciplined working capital management.

Diageo is committed to its disciplined approach to capital allocation, primarily to enhance its shareholder value. DEO has retained its interim dividend at 40.50 cents per share. This reflects its strong liquidity position and confidence in the long-term health of its business.

For fiscal 2025, the company expects capital expenditure to be in the band of $1.3-$1.5 billion.

Diageo’s FY25 Outlook

Diageo expects the organic net sales growth rate in the second half of fiscal 2024 to improve sequentially, although tariffs might impact this momentum. The company estimates organic operating income to decline slightly in the second half, almost in line with the decline witnessed in the first half. It expects a tax rate of 24% for fiscal 2025. DEO anticipates the interest rate to be nearly flat compared with fiscal 2024.

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The Zacks Consensus Estimate for Vita Coco’s current financial-year sales and EPS implies growth of 3.7% and 29.7%, respectively, from the year-ago period’s figures.

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