Diageo (NYSE:DEO) is a global alcoholic beverage company that can lift your portfolio's spirits. Investors might be interested in knowing some strange but true facts about the company.
Five fun facts
- The company has created three exclusive museum/clubs/retail outlets for its most premium brands in Shanghai, Beijing and Seoul, Korea called Johnnie Walker Houses. Only VIP guests get to tipple, purchase the most premium brands of Scotch, or partake in whisky-inspired dinners
These 'bespoke' clubs, also called 'embassies,' allow members to craft a personalized whiskey alongside a master distiller or purchase one of the curated whiskey collections like the Epic Dates collection for 2,250 pounds, or $3,630.79.
Over 40% of Diageo's total sales come from emerging markets. The company considers Asia Pacific the top market for its luxury brands.In the fiscal year ended June 30, operating profits rose 18% in emerging markets. The company expects emerging markets to contribute to 50% of total net sales by 2015.
(Source: Diageo press release)
- The company has a partnership with chemical giant DuPont for its expansive scientific research and development. The science of spirits is key for Diageo, and it has research agreements with several world class universities as well.
An example of a Diageo scientific breakthrough is the process which makes Guinness available to establishments without kegs. Guinness is poured from a can, and then a burst of ultrasound knocks out the nitrogen and allows the same pour as from a tap. The company also pioneered the stabilizing of cream and alcohol, which created a new category of drinks, cream liqueurs.
Syl Saller, Chief Innovation Officer, told investors in May, "There are 3600 spirit innovation launches in the NABCA data base. In year five after launch, we still have 73% of our products in market vs. the category average of 32%."
- In 1759 Arthur Guinness of Guinness Beer, a subsidiary of Diageo, signed a 9,000 year lease on Dublin's St. James Gate Brewery. Now there's a glass half full kind of guy! Guinness is one of Diageo's 14 strategic premium brands, with its strongest business in western Europe.
Six of these 14 brands are No. 1 brands in their respective categories globally: Johnnie Walker scotch, Jose Cuervo tequila, Crown Royal Canadian whiskey, Smirnoff premium vodka, Guinness stout, and Baileys Irish Cream liqueur.
- For years it's been rumored that Diageo would buy out US-based and domestically focused rival Beam (UNKNOWN:BEAM.DL), but Beam's only appeal to Diageo would be its strength in US bourbon/whiskey and its Courvoisier brand. After introducing a maple flavored Crown Royal line extension and 10 year old Bulleit Bourbon, Diageo's position in US premier whiskeys is more assured. Diageo reported 45% US net sales growth for the two new brands.
Diageo is quite the acquirer, having purchased a litany of small companies worldwide and grown to its dominant position by acquisition. Most recently it purchased a Brazilian company that produces cachaca, a distilled sugarcane juice spirit, and bought stakes in Indian company United Spirits International, Halico in Vietnam, Mey Icki in Turkey, and added to its stake in Sichuan Shuijinfang Ltd, a Chinese company.
If any company were in Diageo's sights it would be French premium spirits company Pernod-Ricard (OTC:PDRDY) with its premium ABSOLUT and Chivas Regal brands and strength in emerging markets. However at a $32 billion market cap, slightly under half that of Diageo, Pernod-Ricard would not go down as smoothly as a slug of Chivas.
Still, with the No. 20 ranking Pernod-Ricard beat out both No. 21 Beam and No. 27 Diageo in the Forbes 2013 list of World's Most Innovative Companies. Don't cry for Diageo, though; its five year annualized total return rate of 16% beat both peers.
- Diageo's eye for unusual packaging design has hit the pinnacle with this year's reproduction of the original Sir Alexander Walker whiskey decanter, which "moves to match the motion of the sea." It houses a triple malt whiskey and goes for $1,000. The whole shebang is then encased in a wood display reminiscent of a porthole. It won't be available under your tree this holiday unless you're traveling to Asia.
The company also creates interest at point of service at bars, etc, with unique theatrical pourings such as the 'Copper Kettle Serve' for Ketel One, which envelops the glass with smoke as it's poured from a copper kettle, or the Zacapa brand service, which features cinnamon-vanilla smoke as it is poured, which led to a 58% increase in sales for Zacapa in Italy.
As Saller said in the company's Innovation webcast, "What you drive, what you wear, what you drink says a lot about you. [At Diageo] in everything we do, we can monetize beauty." As an example, the Bailey Irish Cream bottle was designed by famed jewelry designer Stephen Webster
The fundamentals of fun
Although Diageo's share price hasn't appreciated as much as Beam's, it offers higher one year revenue (39.8%) and EPS (21.6%) growth rates than Beam's revenue (6.9%) and EPS (-58.2%) rates.
Diageo also has a higher net profit margin of 16.7% to Beam's 12.4%, and Diageo isn't as expensive at a 21.8 trailing earnings multiple to Beam's 28.3. Lastly, Diageo offers a 2.9% yield which compares with the 1.3% yields of both Beam and Pernod-Ricard.
The Foolish takeaway
Diageo is certainly an interesting company, and a profitable one too. These fun facts allow insight into the innovation and growth strategies of the company: a focus on emerging markets, more premium brand profits, and more R&D, all of which combine to make Diageo a great investment.