Diageo (LON:DGE) shares are in demand this morning after the drinks company revealed solid figures, and announced an increase to the share buyback scheme.
Revenue for the first-half increased by 5.8%, while operating profit jumped by 11%. The group confirmed the share buyback scheme has been boosted by £660 million. The interim dividend was raised by 5% too, and the impressive returns to shareholders has sent a positive signal to the market.
Diageo predicts that operating margins will be in line with the previous guidance of 175 bps for the three years ending June 2019. Johnnie Walker Blue continues to be popular in China and the company’s greater China division saw a 20% rise in revenue, and the firm needs to beef up the operation in order to take advantage of the country’s demand for Western luxury goods.
In September, the group warned that full-year profit will be hurt by the weakness in emerging market currencies. Thanks to the firmer US dollar, revenue and operating profit would be hit by £175 million and £45 million respectively. It wasn’t a major issue for the group, and the CEO said the company’s performance is still consistent with the medium-term guidance.
North America is group’s biggest market, so the stronger greenback is helping the company. Emerging markets play an important role in the performance of the businesses, as Africa accounts for 14% of net sales, and Latin America makes up 9% of total revenue.
The company announced it was selling-off a number of brands in the US in order to focus on premium products. The drinks company disposed of Goldschalger cinnamon schnapps and Seagram’s Vo Candian Whisky, as well as others, for $550 million. A larger portion of the proceeds will be returned to shareholders in the form of a share buyback scheme. The company is pivoting towards quality brands as margins are healthier, and it is a more efficient use of resources.
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