Tag Archives: Diageo

Stocks in Focus: Diageo

This week we are looking at Diageo, one of the world’s largest alcoholic beverage companies, following its $1bn offer for an upmarket tequila brand that was co-founded by actor George Clooney. The acquisition of the tequila brand, Casamigos, will initially cost Diageo $700m, and potentially an additional $300m after assessing the performance of the brand over the next decade.

Diageo is currently spread across 21 geographic regions with brands across every category but its main focus has long been premium spirits, with a leading position in the US. Casamigos has grown rapidly since it was launched in 2013 and according to the Distilled Spirits Council of the United States, sales of super-premium tequila are up by more than 700 percent in the US since 2002. Diageo plan to expand the successful brand to countries outside the US, with the hope of penetrating overseas markets – something that remains a key area of focus for CEO, Ivan Menezes, who is also keen for Clooney and his co-owners to remain with the company after the acquisition.

Diageo remains an attractive stock given the long term prospects for expansion to emerging markets, outstanding collection of global brands (including Guinness, Smirnoff and Johnnie Walker), strong management led by Menezes and a good dividend yield. However, Diageo are not expecting Casamigos to be accretive to earnings for another three years, and it will be interesting to see how they go on to build the brand both in the US and overseas. Recent share price performance has remained strong and we continue to be mindful of the price we pay for stocks.



Stocks in Focus: Diageo

This week I am taking a closer look at Diageo, which announced its results for the year ended 30th June 2014 last month.  In short, it has been a challenging year for the premium drinks company that owns recognisable brands such as Guinness, Smirnoff and Johnnie Walker amongst others.  Net revenue and operating profit fell by 9% and 10% respectively and earnings per share was down 8%. In particular, the company was hit by an unfavourable fixed foreign exchange policy introduced by the Venezuelan Central Bank.  Anti-extravagance laws in China also affected sales as its government introduced a crackdown on corporate entertaining and lavish gifting aimed at stamping out widespread corruption.

On the plus side, we note that organic profit and dividend per share growth were both positive and broadly in line with market expectations. Furthermore, significant investments in core brands and efficiency improvements should soon start to yield benefits.  In the meantime, Diageo’s margin expansion plan is still on track and its new CEO, Ivan Menezes, is implementing a change in culture to simplify business practices in order to make the company leaner and more agile. Mr Menezes was appointed in July last year having previously held several positions within the company as well as strategic roles within other companies such as Nestle and Whirlpool. It will be interesting to see if the group’s focus on core brands and efficiency gains starts to benefit the company’s performance in due course.