Diageo shares jump as drinkers turn to Baileys and tequila during pandemic

Shares in drinks giant Diageo (DGE.L) leapt on Thursday as it hiked dividends and reported unexpectedly resilient revenues, despite the pandemic hammering sales to venues.

One of the world’s biggest spirits and beer producers, Diageo said its underlying sales were up 1% to £4.5bn ($6.1bn). They fell 4.5% on a reported basis however, because of “unfavourable” exchange rates. Profits also slid 8.3% to £2.2bn.

It said it had seen growth across most categories, including tequila, gin, Canadian whisky, US whiskey and liqueurs. Beer sales declined 11% however, hit by curbs on trade.

In its interim first-half results for the last six months of 2020, Diageo said sales in North America, its largest market, had been particularly strong and ahead of expectations.

The company, which owns brands including Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Gordon’s and Guinness, predicted a continued impact in the first six months of 2021 from curbs on bars and other venues, as well as travel retail.

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"We delivered a strong performance in a challenging operating environment, returning to top line organic sales growth during the half. We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities,” said chief executive Ivan Menezes.

On the US, he added: “Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol.”

The company announced its interim dividend would be increased by to 27.96p per share.

US spirits sales rose by 15%, with tequila sales up 80%. Baileys sales rose 12%, helped by the “successful” launch of Baileys Apple Pie, and Captain Morgan sales rose 9%.

In Europe and Turkey, overall net sales fell 10%, despite growth in Great Britain and northern Europe. Gin sales dropped 2% and beer sales slumped 34%, with Guinness sales impacted by venue restrictions and closures “particularly in Ireland and Great Britain.”

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Scotch whisky sales rose in Britain and Northern Europe, but declined in southern and eastern Europe. Baileys sales were up 8%, driven by Great Britain, Ireland and northern Europe.

Vodka sales in Europe dropped 11%, with Smirnoff taking a hit.

Menezes added: “We expect ongoing volatility and disruption in the second half of the year, particularly in the on-trade channel, which will make performance more challenging.”

Diageo declined to provide guidance “due to the ongoing volatility.” It expects “continued momentum” in North America, but said recovery elsewhere will reflect the extent of continued restrictions and re-opening of the on-trade.

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