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What's in the Offing for Diageo (DEO) in 1H FY20 Earnings?

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Diageo Plc (DEO - Free Report) is scheduled to release interim results for the first half of fiscal 2020 on Jan 30. The company has been benefiting from strong fundamentals, continuous innovation and focus on expansion despite soft industry trends.

Notably, the alcoholic beverage company, which reports on a half-yearly basis, posted strong results for fiscal 2019. It recorded earnings growth of 10.3% in fiscal 2019, with a 5.8% improvement in sales.

Key Factors to Note

Diageo’s focus on achieving growth via acquisitions has been yielding results. It has been focusing on expanding the fastest-growing premium spirits brands by resource optimization, which should have driven growth and boosted shareholder value.

Diageo plc Price and Consensus


Diageo plc Price and Consensus

Diageo plc price-consensus-chart | Diageo plc Quote

The company continuously explores opportunities to expand geographically through acquisitions to further strengthen its exposure in the fast-growing categories.

Moreover, the Zacks Rank #3 (Hold) company has been witnessing improved operating margins, owing to enhanced price/mix and efficiencies from the productivity program. It expects synergies from productivity initiatives to continue throughout fiscal 2020 as well. Improvement in operating margin is likely to get reflected in the bottom line in the upcoming results.

Additionally, like most other multinationals, the company has been benefiting from expansion in the emerging markets. Diageo is the leading international spirits company in the emerging markets of Africa, Latin America and Asia. Moreover, it caters to the local tastes of the regions. Its products like Johnnie Walker Blue Label bottle, which were designed through a series of exclusive private tasting in China, India, Thailand, Vietnam, Brazil and Mexico along with local cultural relevance, testify the strategy. Gains from its local products are likely to get reflected in its top-line results for the first half of fiscal 2020.

However, the company has been witnessing pressures from cost inflation and higher marketing expenses. Moreover, the company expects an increase in marketing investment rate in fiscal 2020 on sustaining gains witnessed in the U.S. Spirits segment through investments in new brands. The negative impacts of the investments are likely to get reflected in its operating margin growth to some extent in the upcoming half-yearly results as well.

Furthermore, the company expects a slowdown in sales growth in fiscal 2020, owing to the lapping of several successful innovation launches in fiscal 2019. This is likely to have brought a slowdown in the sales results for the first half of fiscal 2020.

Looking for Lucrative Picks? Check These

Constellation Brands Inc. (STZ - Free Report) has a long-term earnings growth rate of 8.2%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Coca-Cola Company (KO - Free Report) presently has an expected long-term earnings growth rate of 6.6% and a Zacks Rank #2.

Monster Beverage Corporation (MNST - Free Report) has an expected long-term earnings growth rate of 14.3%. Currently, it carries a Zacks Rank #2.

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