Alcoholic drinks giant Diageo (DGE) was one of the biggest gainers on the FTSE 100 leaderboard on Thursday after the group returned to growth in a forecast-beating first half.
The Johnnie Walker whisky-to-Smirnoff vodka maker saw performance in North America, its biggest market, ahead of management’s expectations in the six months to 31 December 2020.
Diageo resisted the temptation to provide specific guidance for the full year to 30 June 2021 because of the ongoing uncertainty and volatility created by the pandemic but it did say that it expected to see a second half improvement across all regions given weak Covid-impacted comparatives.
Diageo stock rallied nearly 4% in response to the announcement, pushing to £29.66 levels.
Under the circumstances, Diageo’s results could have been a lot worse given the ongoing disruption to the hospitality and travel sectors as fewer people have been able to go to bars, hotels, pubs and restaurants as well as shop for spirits at airports.
Organic growth was modest at 1% for the half but growth there was, once currency swings are stripped out. Net sales, which include elements outside its control like exchange rates, fell 4.5%.
Diageo also raised its dividend by 2% to 27.96p, even after operating profits were pressured by pub and bar closures and FX.
Some analysts were forecasting a 4% decline in organic sales, so Diageo's resilience’ is welcome for one of Shares’ key selections for 2021.
‘Working in its favour is a rise in alcohol sales during lockdown as people are forced to entertain themselves at home’, explained Russ Mould, investment director at investment platform AJ Bell.
Mould noted spirit sales holding up well and the popularity of pre-mixed drinks but the investment expert stated the obvious impact of lockdowns.
‘Longer-term, Diageo really needs all the leisure establishments to reopen as they are also key drivers of premium spirit product sales’, he said.
But Mould pointed to ‘several comforting signs’ in its results which show the hallmarks of a ‘well-run business.’
‘Its ability to continue to invest in marketing and product innovation will stand it well as markets reopen. It has been fast to curb discretionary spending, which is quite an achievement for a business of its size. And it is still able to generate strong enough amounts of cash to grow dividends.’