Diageo PLC repots global volume fell 2% but net sales grew 4% in the first half, ended Dec. 31. Those net sales gains – largely a result of higher prices – came at a cost: the company bolstered marketing spending 7%. Operating profit was up 6%, but net profit surged 36%, as did earnings per share, largely thanks to an 83% drop in the company’s tax rate.
On an organic basis, worldwide sales grew 4.2%, organic volume was up 1.8% and organic operating profit was up 6.7%.
The company noted that reported net sales were less than organic net sales and attributed this to “unfavorable exchange and impacts from acquisitions and disposals.”
Diageo Beer Co. USA net sales grew 2% with ready to drink growing 4%, driven by continued growth of Smirnoff Ice Spiked and Smirnoff Spiked Sparkling Seltzer, both launched last year. Sales of Guinness were flat, but Smithwick’s ale and Harp lager both declining, pulling overall beer sales down 1%.
U.S. spirits net sales grew 3%. Category share gains were achieved for all key brands except in vodka, where net sales declined 8% primarily driven by Cîroc and Ketel One vodka, which declined 12% and 13%, respectively, the company said. Smirnoff net sales were down 2%, a slower decline than last year.
The company said it was addressing the marketing issues with Ciroc and Ketel One, but warned the plans “are expected to take time to improve performance.” As for Smirnoff, marketing is focused on reminding consumers that “it is a quality vodka at a great price through a campaign involving celebrity influencers, new packaging with quality cues and local activation against multi-cultural millennial consumers.
North American whisk(e)y net sales grew 4%. Crown Royal grew 4% with Crown Royal Deluxe and Crown Royal Regal Apple growth accelerated, partially offset by Crown Royal Vanilla lapping its launch in the first half of last year.
Bulleit continued its strong growth. Scotch grew 3% with Johnnie Walker growing 5%.
Captain Morgan and Baileys continued their growth momentum. The company credited the ‘Live like a Captain’ campaign, which it said is resonating well with consumers and driving strong category share and equity gains for Captain Morgan. Baileys growth accelerated versus last year with the launch of a new campaign reminding consumers of its indulgent treat positioning over the holidays. Don Julio net sales grew 39% with growth and category share gains accelerating versus last year.
Net sales in Canada were up 1%.
Marketing in North America increased 8% and grew ahead of net sales as investment was up-weighted in the first half, the company said. Operating margin improved 6 basis points as positive mix and productivity initiatives delivered gross margin expansion with zero based budgeting and organizational effectiveness changes driving lower overhead cost, largely offset by increased marketing.