For some time Diageo has been wrestling with slowing emerging markets growth and pressure on established brands closer to home, but the market enthusiastically welcomed the progress the Guinness maker made last year.
An acceleration of organic growth and favourable exchange rates boosted sales by 15% to £12.1bn and operating profits 25% to £3.6m in the year ended 30 June. All regions contributed to broad-based organic net sales growth of 4.3% and a 1.1% rise in organic volumes with particularly strong figures at the premium end of its portfolio.
Both the top-line and bottom-line growth exceeded expectations. Management upped its cost saving target from £500m to £700m over the next three years while increasing its forecast impact on margins over that period. The group also announced a £1.5bn share buyback scheme.
Barclays commented: “Despite tougher trading in the group’s core US business, the long hoped for raise to the group’s productivity savings plan should be taken well by investors.” Shore Capital added: “There are still challenges in a number of markets but the group as a whole is looking to have strong momentum.” Diageo reached a record share price of in morning trading on Thursday of 2,458p. The stock is around 15% up so far in 2017.
Nestlé had less to enthuse the market with on Thursday, with weaker than expected first-half sales growth and a lower than forecast margins. Organic sales rose by 2.3% against expectations of 2.7% growth, while margins fell to 15% against forecasts of 15.2%. “Nestlé has stated that it is accelerating margin plans but there is little evidence so far gauging by these results,” said SocGén. The shares opened 1.8% lower at CHF80.90 but recovered back to CHF82.15.
Danone issued its first trading update to include figures from its WhiteWave acquisition and presented a mixed bag. Second quarter sales growth remained weak at 0.2% amid a 2.1% decline in volumes, but EBIT margin growth was well ahead of expectations at 14.2%. Danone was up 1.2% at Thursday lunchtime to €65.17.
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