Diageo (NYSE:DEO) saw a steady rise in spirit sales across the board in fiscal 2019, and that's driving steady improvement on the bottom line. Tequila continues to be the outperformer, but sales for spirits across the board were strong.
Here's a look at the highlights from the year and what management expects for the future.
Diageo: The raw numbers
|Sales*||12.87 billion||12.16 billion||2%|
|Net income*||3.16 billion||3.02 billion||5%|
|Basic EPS||130.7 pence||121.7 pence||7%|
What happened with Diageo this quarter?
The headline numbers are solid, but to understand what's going on in the business, we need to dig into the sale of spirits themselves and where they're popular. The highlights from the year are below.
- Overall, volume was only up 2% in the quarter, led by a 5% increase in shipments to Asia-Pacific and offset by a 2% decline in Europe and Turkey.
- Diageo's hottest spirit was tequila, which saw a 19% increase in volume and a 37% jump in reported sales. Gin volume was up 17%, with total sales up 23%. Rum was the one category that shrank, with volume and sales down 3% for the year.
- On the product level, Diageo saw a 20% increase in Don Julio volume and a 32% increase in sales. Ketel One was up 10% in volume and 15% in sales. Bulleit was the other winner with an 11% increase in volume and 13% rise in sales. Ciroc vodka was the worst performer, with a 10% drop in volume and a 6% drop in sales.
- One bright spot that has been consistent in the beer and spirits industry is growth of ready-to-drink beverages like Smirnoff Spiked Seltzer and Smirnoff Ice Smash. Diageo's volume was up 18% in the segment and reported sales were up 21%.
- The dividend for fiscal 2019 was recommended at 68.6 pence, up 5% from a year ago.
- The board of directors approved a plan to return 4.5 billion pounds ($5.5 billion) to shareholders in the fiscal 2020 to 2022 period.
What management had to say
Diageo's business is built around a number of powerful brands that have decades of staying power. That can make it tough to grow outside of those brands' lanes, which is why companies like Diageo will acquire growth brands like its $1 billion acquisition of Casamigos in 2017. CEO Ivan Menezes said the company is going to try to build those new brands in-house, which will take time: "Our capabilities around marketing investments continue to get stronger, and we see opportunities to invest, including behind new-to-world brands. These will take time to build, but will be an important part of our longer-term growth strategy."
If Diageo can keep growing the core business at a steady rate, it could boost long-term growth by building new brands organically.
Management expects mid single digit revenue growth in fiscal 2020, and that would be a solid result for the business. But the investment in new brands may lead to bottom-line growth that's a bit slower than we've come to expect, only exceeding sales growth by about a percentage point.
As long as name-brand spirits are growing in popularity worldwide, Diageo is well positioned to capture growth, and in 2019 the machine is working as well as investors can expect.