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Diageo plc (DEO - Free Report) reported preliminary fiscal 2024 results, ending Jun 30, 2024, wherein pre-exceptional earnings per share declined 8.6% year over year to 179.6 cents. This was mainly due to lower organic sales, reduced organic operating profit, higher finance charges and exceptional items. The decline was partly negated by reduced tax and increased share repurchases.
On a reported basis, net sales declined 1.4% year over year to $20.3 billion due to lower organic sales and unfavorable currency impacts. Organic net sales were down 0.6% year over year due to a decline in volume partly offset by a favorable price mix.
The company’s volume declined 5% in fiscal 2024, while the organic volume was down 3.5%. The volume decline was led by soft trends in the Latin America and Caribbean (“LAC”) segment due to rapidly changing consumer sentiment and increased inventory position. The company delivered a positive price mix of 2.9% in fiscal 2024.
The company witnessed organic sales decline of 21% and 3% in LAC and North America, respectively. However, organic sales improved 3%, 4% and 12%, respectively, in Europe, Asia Pacific and Africa.
Category-wise, the company reported a decline in organic sales across most categories, particularly spirits and ready-to-drink, which fell 4% and 1%, respectively. However, it reported organic sales growth of 14% for the beer category.
Shares of the Zacks Rank #4 (Sell) company have lost 28.2% in the past year compared with the industry’s 19.5% decline.
Image Source: Zacks Investment Research
The company’s reported operating profit improved 8.2% year over year to $6 billion in fiscal 2024, driven by the positive effects of certain exceptional operating items, offset by a decline in organic operating profit. Organic operating profit fell 4.8% year over year mainly on soft organic sales performance and operating profit declines of $302 million and $142 million, respectively, in LAC and North America.
The reported operating margin expanded 262 bps year over year while the organic operating margin contracted 130 bps. The organic operating margin was affected by the decline in LAC and a cautious consumer environment in the United States.
Financials
In fiscal 2024, Diageo delivered net cash from operating activities of $4.1 billion, marking a year-over-year increase of $469 million. DEO reported a strong free cash flow of $2.6 billion, up $374 million from the prior year due to strong working capital management and the positive impact of lapping one-off cash tax payments in the prior year. This was offset by lower operating profit and higher interest expenses.
Diageo is committed to its disciplined approach to capital allocation primarily to enhance its shareholder value. In fiscal 2024, the company incurred a capital expenditure of $1.5 billion related to investments in the business for long-term sustainable growth.
DEO increased the full-year dividend by 5% to 103.48 cents per share. This reflects its strong liquidity position and confidence in the long-term health of its business. Additionally, Diageo completed a $1 billion return of capital program announced in August 2023, through share repurchases. In fiscal 2024, the company repurchased 27.4 million ordinary shares for $987 million.
FY25 & Long-Term View
The company expects the operating environment to be challenging in fiscal 2025 and the trends witnessed in fiscal 2024 to persist. The negative pressures on organic operating margin experienced in the second half of fiscal 2024 are anticipated to continue in fiscal 2025. It expects to continue driving productivity and pricing to offset the cost inflation. Moreover, the company is keen on investing in strategic initiatives to drive long-term sustainable organic growth.
The company anticipates the tax rate before exceptional items to be 24% for fiscal 2025. It expects the effective interest rate for fiscal 2025 to be flat with the fiscal 2024 rate of 4.3%. Capital expenditure is expected to be $1.3-$1.5 billion.
Moreover, it notes that it is on track to deliver on its medium-term guidance for fiscal 2023-2025, wherein it targets organic sales growth of 5-7% and organic operating profit growth broadly in line with net sales growth.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Vital Farms (VITL - Free Report) , TreeHouse Foods (THS - Free Report) and The Coca-Cola Company (KO - Free Report) .
Vital Farms offers a range of produced pasture-raised foods. It currently sports a Zacks Rank #1 (Strong Buy). VITL has a trailing four-quarter earnings surprise of 102.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate Vital Farms’ current financial-year sales and EPS indicates growth of 24.9% and 66.1%, respectively, from the year-ago reported numbers. The consensus mark for VITL’s EPS has moved up 2.1% in the past 30 days.
TreeHouse Foods, a manufacturer of packaged foods and beverages, currently sports a Zacks Rank of 1. THS has a trailing four-quarter negative earnings surprise of 4.5%, on average.
The Zacks Consensus Estimate for THS’ current-financial year’s sales and earnings indicates a decline of 1.6% and 8.5%, respectively, from the prior-year reported numbers. The consensus mark for TreeHouse’s EPS has remained unchanged in the past 30 days.
Coca-Cola, a leading beverage company, currently carries a Zacks Rank #2 (Buy). KO has a trailing four-quarter earnings surprise of 4.7%, on average.
The Zacks Consensus Estimate for Coca-Cola’s current-financial year’s sales and EPS indicates growth of 0.5% and 5.6%, respectively, from the year-ago reported numbers. The consensus mark for KO’s EPS has moved up 0.7% in the past seven days.
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Diageo (DEO) FY24 Earnings & Sales Decline Y/Y on Soft Volume
Diageo plc (DEO - Free Report) reported preliminary fiscal 2024 results, ending Jun 30, 2024, wherein pre-exceptional earnings per share declined 8.6% year over year to 179.6 cents. This was mainly due to lower organic sales, reduced organic operating profit, higher finance charges and exceptional items. The decline was partly negated by reduced tax and increased share repurchases.
On a reported basis, net sales declined 1.4% year over year to $20.3 billion due to lower organic sales and unfavorable currency impacts. Organic net sales were down 0.6% year over year due to a decline in volume partly offset by a favorable price mix.
The company’s volume declined 5% in fiscal 2024, while the organic volume was down 3.5%. The volume decline was led by soft trends in the Latin America and Caribbean (“LAC”) segment due to rapidly changing consumer sentiment and increased inventory position. The company delivered a positive price mix of 2.9% in fiscal 2024.
Diageo plc Price and Consensus
Diageo plc price-consensus-chart | Diageo plc Quote
The company witnessed organic sales decline of 21% and 3% in LAC and North America, respectively. However, organic sales improved 3%, 4% and 12%, respectively, in Europe, Asia Pacific and Africa.
Category-wise, the company reported a decline in organic sales across most categories, particularly spirits and ready-to-drink, which fell 4% and 1%, respectively. However, it reported organic sales growth of 14% for the beer category.
Shares of the Zacks Rank #4 (Sell) company have lost 28.2% in the past year compared with the industry’s 19.5% decline.
Image Source: Zacks Investment Research
The company’s reported operating profit improved 8.2% year over year to $6 billion in fiscal 2024, driven by the positive effects of certain exceptional operating items, offset by a decline in organic operating profit. Organic operating profit fell 4.8% year over year mainly on soft organic sales performance and operating profit declines of $302 million and $142 million, respectively, in LAC and North America.
The reported operating margin expanded 262 bps year over year while the organic operating margin contracted 130 bps. The organic operating margin was affected by the decline in LAC and a cautious consumer environment in the United States.
Financials
In fiscal 2024, Diageo delivered net cash from operating activities of $4.1 billion, marking a year-over-year increase of $469 million. DEO reported a strong free cash flow of $2.6 billion, up $374 million from the prior year due to strong working capital management and the positive impact of lapping one-off cash tax payments in the prior year. This was offset by lower operating profit and higher interest expenses.
Diageo is committed to its disciplined approach to capital allocation primarily to enhance its shareholder value. In fiscal 2024, the company incurred a capital expenditure of $1.5 billion related to investments in the business for long-term sustainable growth.
DEO increased the full-year dividend by 5% to 103.48 cents per share. This reflects its strong liquidity position and confidence in the long-term health of its business. Additionally, Diageo completed a $1 billion return of capital program announced in August 2023, through share repurchases. In fiscal 2024, the company repurchased 27.4 million ordinary shares for $987 million.
FY25 & Long-Term View
The company expects the operating environment to be challenging in fiscal 2025 and the trends witnessed in fiscal 2024 to persist. The negative pressures on organic operating margin experienced in the second half of fiscal 2024 are anticipated to continue in fiscal 2025. It expects to continue driving productivity and pricing to offset the cost inflation. Moreover, the company is keen on investing in strategic initiatives to drive long-term sustainable organic growth.
The company anticipates the tax rate before exceptional items to be 24% for fiscal 2025. It expects the effective interest rate for fiscal 2025 to be flat with the fiscal 2024 rate of 4.3%. Capital expenditure is expected to be $1.3-$1.5 billion.
Moreover, it notes that it is on track to deliver on its medium-term guidance for fiscal 2023-2025, wherein it targets organic sales growth of 5-7% and organic operating profit growth broadly in line with net sales growth.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Vital Farms (VITL - Free Report) , TreeHouse Foods (THS - Free Report) and The Coca-Cola Company (KO - Free Report) .
Vital Farms offers a range of produced pasture-raised foods. It currently sports a Zacks Rank #1 (Strong Buy). VITL has a trailing four-quarter earnings surprise of 102.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate Vital Farms’ current financial-year sales and EPS indicates growth of 24.9% and 66.1%, respectively, from the year-ago reported numbers. The consensus mark for VITL’s EPS has moved up 2.1% in the past 30 days.
TreeHouse Foods, a manufacturer of packaged foods and beverages, currently sports a Zacks Rank of 1. THS has a trailing four-quarter negative earnings surprise of 4.5%, on average.
The Zacks Consensus Estimate for THS’ current-financial year’s sales and earnings indicates a decline of 1.6% and 8.5%, respectively, from the prior-year reported numbers. The consensus mark for TreeHouse’s EPS has remained unchanged in the past 30 days.
Coca-Cola, a leading beverage company, currently carries a Zacks Rank #2 (Buy). KO has a trailing four-quarter earnings surprise of 4.7%, on average.
The Zacks Consensus Estimate for Coca-Cola’s current-financial year’s sales and EPS indicates growth of 0.5% and 5.6%, respectively, from the year-ago reported numbers. The consensus mark for KO’s EPS has moved up 0.7% in the past seven days.