) earnings in fiscal 2014 (ended Jun 30, 2014) went down 7.6% year
over year in local currency to 95.5 pence ($1.60* per share) from
103.1 pence ($1.61** per share) in the year-ago period.
Weak sales results due to macroeconomic headwinds and tough
retail condition in emerging markets lowered profit during fiscal
On a reported basis, net revenue (i.e. total revenue excluding
excise duties) declined 9% in local currency in fiscal 2014. On an
organic basis, revenues fell 0.4%, while volume declined 2% from
the prior-year level. Volume growth in reserve brands was largely
offset by decline in beer and scotch in the emerging markets.
Diageo reduced its marketing spending by 1% organically in
fiscal 2014. Operating profit before exceptional items (excluding
acquisitions and disposals) went up 3% year over year on an organic
All the regions, except Western Europe and Asia Pacific,
delivered positive organic sales growth.
, Diageo's organic sales increased 3% in fiscal 2014, backed by 5%
and 6% year-over-year growth in U.S. Spirits and Wine,
respectively. Marketing spending increased 10% in the region,
primarily backed by a 3-percentage-point benefit from procurement
efficiencies. Operating profit declined 4% organically in the
fiscal year. In Canada, net sales grew 1% as strong growth in
reserve brands backed by the Ciroc and scotch malt brands were
offset by the general slowdown in the economy.
Sales of Beer and Ready-to-Drink declined mainly due to
increased competition and supply disruptions
, organic sales and volume remained flat as modest growth in Great
Britain, Benelux, France and the Nordics offset the slowing decline
in Southern Europe and Ireland. Operating profit also remained flat
as higher production efficiencies were offset by an increase in
marketing spend on premium core, innovation and reserve brands.
Efficiencies in procurement and promotional activities were used to
fund a 15% increase in media spend.
Diageo has started reporting
Africa, Eastern Europe and Turkey
as a new geographical segment from fiscal 2014. This segment's
organic sales increased 11%, with 4% volume decline due to specific
market challenges in the region. Marketing spending increased 1% in
the region, particularly on commercial activations and new brand
building initiatives. Operating profit declined 18%.
Latin America and Caribbean
region delivered modest performance in the fiscal year, with
organic sales growth of 2% and volume decline of 1% backed by
strong growth in Venezuela and Paraguay, Uruguay and Brazil (PUB),
partially offset by slowdown in Mexico. The company also increased
its marketing spending by 1% to enhance the brand equities in its
reserve brands. It also benefited from advertising during FIFA
World Cup and foraying into new outlets.
region, sales slipped 7% due to weaker trading environment in China
and South East Asia. However, the company gained share in scotch in
both Thailand and China. Marketing spending slipped 7% mainly due
to lower spend in international spirits in China and South East
The company is increasing marketing investment in all the
geographical segments and is focusing more on its premium brands.
The strategy of converting to high-margin high-priced products is
helping the company improve its margins.
Diageo is expanding fast into the emerging markets. The company
holds 27.4% ownership in United Spirits Limited, a leading spirit
company of India.
Currently, Diageo carries a Zacks Rank #3 (Hold). Other
companies in the same sector worth considering include Boston Beer
), Castle Brands Inc. (
) and Molson Coors Brewing Company (
). While Boston Beer and Castle Brands sport a Zacks Rank #1
(Strong Buy), Molson Coors carries a Zacks Rank #2 (Buy).
*£1=$1.62647 (average price of the year ended Jun 30, 2014).
**£1=$1.56910 (average price of the year ended Jun 30,
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