Diageo Toasts 2007

Motley Fool Income Investor pick Diageo (NYSE:DEO) is one of the world's leading alcoholic beverage firms, and because of certain impressive financial metrics, it was recently deemed an "international superstar stock" by The Motley Fool. Past performance aside, things are also shaping up well for this year's results.

Yesterday, Diageo confirmed its earnings forecasts for the fiscal year ending June 2007. Management reiterated that it expects organic net sales "to be in line with the 6% we achieved in the year ended June 2006." It also expects operating profit growth of "at least 7%."

Management's confidence was due to a gain in North American alcoholic-beverage market share for the first quarter, as consumers embraced premium spirits instead of the frosty brews offered by the likes of Anheuser-Busch (NYSE:BUD), Molson Coors (NYSE:TAP), and Boston Beers (NYSE:SAM). Indeed, Anheuser's most recent letter to shareholders conceded that consumers are embracing high-end alcohol to the detriment of beer products.

Diageo also cited strength in continental Europe and double-digit sales growth in Russia, which offset difficulties with certain Spanish drinks and slower sales of Guinness in Ireland and Great Britain. There will undoubtedly be fluctuations in certain markets, but shouldn't Guinness sales have some form of government guarantee for unabated growth in Ireland? Maybe not, but Guinness surely is a national treasure in the country. In other international spheres, Diageo detailed strong first-quarter sales growth in Latin America, yet faces weaknesses in the Middle East.

Overall, Diageo has a solid track record of turning mid-single-digit sales growth into strong cash flow generation. Returns on invested capital have exceeded 10% for four years now, and the dividend yield of 4.1% is also favorable.

The stock has had a strong run, up over 35% since late 2004. And thanks to a number of enviable Foolish Investment Characteristics -- including leading brands, exposure to a mass market with repeat purchases, and strong financial direction -- the shares could be headed for further gains. Also, be sure to check out competitors such as Constellation Brands (NYSE:STZ) and Brown-Forman (NYSE:BF-B) (NYSE:BF-A), which are also benefiting from the move to premium spirits.

For just a splash of Foolishness:

• International Superstar Stocks: Diageo
• Constellation Brands Chugs Ahead

Diageo is a Motley Fool Income Investor pick, while Anheuser-Busch is an Inside Value recommendation. Whatever your investing style, The Motley Fool has a newsletter just right for you.

Fool contributor Ryan Fuhrmann is long shares of Diageo but has no financial interest in any other company mentioned. Feel free to email him with feedback or to further discuss any companies mentioned. The Fool has a disclosure policy that can withstand being shaken or stirred.