Shares of liquor-giant Diageo plc (LON:DGE) marched towards new all-time high this Thursday. The £61 billion multinational reported an impressive 25% jump in operating profits on the back of a 15% growth in revenue for the year ended June’17.
Two primary growth driver for DGE were a weak sterling (inflated its overseas revenue) and rebound in organic (excluding acquisitions) sales growth to 4.3% from 2.8% a year ago, when organic growth in all regions was more than offset by currency headwinds and other one-off charges.
The impact of currency was significant, considering organic operating profit grew 5.6%, which is still higher than 3.5% in the previous fiscal. “We have delivered consistent strong performance improvement across all regions and I am pleased with progress in our focus areas of US Spirits, scotch and India”, said CEO Ivan Menezes.
Overall sales in the US grew 3% as DGE gained market share in all segments except vodka. US scotch-sales jumped 8%, driven by Johnie Walker Black Label and Buchanan, and whisky was up 12%. Growth in India, where DGE gained controlling interest of the country’s largest liquor company (United Spirits) back in 2014, was acceptable at 2%, coming on the heels of demonetization and a legislation banning liquor sales near highways.
Organic growth across all regions was enough for the company to raise its three-year margin improvement target of 1% to 1.75%. Going forward, DGE expects to deliver mid-single digit organic sales growth, an upbeat outlook for a mature global company in a defensive sector.
Diageo, with a long history of raising dividends, raised the payout by 5% as free cash flow jumped to £2.7 billion from £2.1 billion in FY’16. This, in addition to £1.4 billion cash (including other liquid assets) on the company’s balance sheet, triggered a £1.5 billion share buyback program, which will increase the value of each share held by shareholders — no wonder shares jumped 6.5% in a day.