Expansion & Innovation To Aid Diageo's (DEO) 1H19 Earnings
Zacks Investment Research | Jan 23, 2019 11:34PM ET
Diageo (LON:DGE) Plc (NYSE:DEO) is scheduled to release interim results for the first half of fiscal 2019 on Jan 31. The company is witnessing momentum, owing to its strong fundamentals, continuous innovation and focus on expansion. These factors are likely to aid the company’s earnings for the first half of fiscal 2019.
Notably, this alcoholic beverage company, which reports on a half-yearly basis, posted strong results for fiscal 2018. It recorded earnings growth of 9.3% in fiscal 2018, with 0.9% improvement in sales.
Innovation and Expansion to Aid Earnings
Diageo explores opportunities to expand geographically through acquisitions. This, along with innovation efforts, fueled Diageo’s results in fiscal 2018, wherein both sales and earnings improved year over year. While the bottom line gained from higher organic operating profit and reduced finance costs, the top line was driven by broad-based growth across all regions and categories, except for vodka.
Moreover, the company is witnessing improved operating margins, thanks to increased productivity savings in overheads and lower related costs. It expects synergies from productivity initiatives to continue in fiscal 2019 as well. Driven by the company’s productivity program, Diageo expects to deliver on its targeted operating margin expansion of 175 basis points for the three years ending Jun 30, 2019. Furthermore, it expects organic net sales growth in the mid-single-digit range for fiscal 2019.
Additionally, the company’s strong results reflect its strategy of exploring opportunities to expand through acquisitions. It is focused on penetrating the emerging markets of Africa, Latin America and Asia, and bolstering presence by catering to the local tastes of these regions. This is significantly aiding volume growth for the company, resulting in the robust top line.
Backed by these positives, Diageo stock has outpaced the industry in the past three months. Notably, this Zacks Rank #3 (Hold) stock gained 4.6% against the industry ’s decline of 2.2%.
However, exchange rate fluctuations remain a cause of concern for the company. Fluctuations in the U.S. Dollar, Turkish lira and other emerging market currencies mostly marred its sales and operating profit in fiscal 2018. Based on current rates, the company expects currency headwinds to impact net sales and operating profit in fiscal 2019 by nearly £70 million and £10 million, respectively.
Looking for Lucrative Picks? Check These
Get The News You Want
Some better-ranked stocks are Archer Daniels Midland Company (NYSE:ADM) , currently sporting a Zacks Rank #1 (Strong Buy), and Ambev S.A. (NYSE:ABEV) and Monster Beverage Corporation (NASDAQ:MNST) , carrying a Zacks Rank #2 (Buy). You can see Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.