Diageo records US$3B in half-year profits boosted by strong growth in US spirit sales

UK – British multinational alcoholic beverage company,Diageo has reported an operating profit of £2.24 billion (about US$3.07 billion) in half year profits.

The unprecedented results were largely attributed to a strong performance in US spirit sales, which grew by 15% helping offset declines in coronavirus-impacted markets.

The owner of Gordon’s gin and Smirnoff vodka also witnessed improvement in all regions compared to the second half of fiscal 2020, partially reflecting improved performance in the off-trade and the reopening of the on-trade in certain markets.

Overall, Diageo was able to record an organic growth of 1% in the six months ended 31 December 2020.

Diageo’s largest unit, North America, saw its organic net sales rise by 12.3% which helped offset declines in other regions.

US spirit net sales increased 15% with growth across all categories: tequila grew 80%, Scotch went up by 6%, vodka 6%, Baileys 12% and Captain Morgan 9%.

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Diageo performed exceptionally well in North AMerica because it makes more of its sales in the off-trade than the on-trade and thus suffered less of a hit from bar and nightclub closures than elsewhere.

For every $1 the company makes in bar, club and restaurant sales, it makes $4 in liquor stores and supermarkets, according to an analysis by Sky News.

Second, where customers were forced to drink at home rather than in a pub or bar, they have been consuming more of Diageo’s brands.

For example, sales of Ciroc vodka, a brand that had appeared to have lost a bit of momentum in recent years, were up by 16% in the US.

Ivan Menezes, Diageo CEO, said: “North America, our largest market, performed particularly strongly and ahead of our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol.”

Meanwhile, Diageo Beer Company USA recorded a 7% rise in net sales with strong growth in Smirnoff flavoured malt beverages, partially offset by a decline in Guinness.

In Europe and Turkey net sales were down by 10%, while Asia Pacific fell by 3% due to international travel and local market restrictions.

Nevertheless, Greater China recorded a 15% net sales increase driven primarily by Chinese white spirits and Scotch, representing a significant improvement to its performance last year when the region was first impacted by Covid-19.

Africa sales were roughly flat, contributed by a 10% decline in South Africa partly due to alcohol bans in the country.

Despite the strong half year performance, the company’s overall net sales were however, down by 4.5% to £6.87 billion (US$9.9 billion), compared to £7.2 billion (US$9.87 billion) recorded during the same time last year.

During the half year, the company also completed the acquisition of Aviation American Gin and Davos Brands as it aims to further premiumise its portfolio.

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