Diageo(US:DEO)2022-07-29 04:10Financial Data and Key Metrics Changes - Sales increased by 21% with double-digit growth across all regions, driven by a 10% volume increase and an 11-point price/mix growth, with price contributing mid-single-digit growth [3][4] - Diageo's three-year compound annual growth rate (CAGR) for organic net sales was 9%, with North America at 12% and Europe at 6% [4] - The company is now 28% larger than pre-COVID levels in fiscal 2019, with strong gross margin expansion and improvements in operating margin [4][5] Business Line Data and Key Metrics Changes - The Super Premium+ brands grew by 31%, indicating a shift towards premiumization within the portfolio [4] - Marketing and advertising spend increased by 25%, reflecting the company's commitment to brand investment [4][5] Market Data and Key Metrics Changes - The spirits category is expected to continue premiumization trends, with Diageo well-positioned to capture market share in the total beverage alcohol sector [5][20] - Tequila household penetration in the US is growing at 15%, with expectations for continued growth in the category [9][10] Company Strategy and Development Direction - Diageo is focused on long-term investments in production capacity, supply chain agility, and digital capabilities, alongside sustainability goals [5][16] - The company maintains a disciplined capital allocation strategy, prioritizing business investment, M&A, and progressive dividend payouts [15][16] Management's Comments on Operating Environment and Future Outlook - The operating environment is expected to be challenging due to inflation and potential consumer spending power weakening, but the company is confident in its resilience and ability to navigate these challenges [5][20] - Management emphasized the importance of staying close to consumers and leveraging data to respond to market trends [19][20] Other Important Information - Diageo's supply chain agility program aims to enhance resilience and productivity, with a payback period of five years expected [49][50] - The company has successfully navigated supply chain constraints, ensuring product availability despite challenges [29][30] Q&A Session All Questions and Answers Question: Will more pricing be required in fiscal 23 due to cost headwinds? - Management indicated that while mid-single-digit pricing was achieved, they will continue to use revenue growth management strategies to navigate pricing in the future [12][14] Question: What is the outlook for tequila household penetration compared to whisky? - Management expressed optimism about tequila's growth potential, noting strong consumer interest and demographic trends favoring spirits [9][10] Question: How does Diageo view capital allocation and potential re-leveraging? - The company reiterated its commitment to investing in the business, with a focus on marketing and capital expenditures, while also considering M&A opportunities [15][16] Question: What changes in consumer behavior are being observed in the US? - Management reported no significant down-trading trends yet, but they are closely monitoring consumer behavior and market dynamics [27][28] Question: Are there any supply chain issues to be concerned about? - Management acknowledged some constraints on specific products but emphasized their strong supply chain management and relationships with suppliers [29][30] Question: How does Diageo's current position compare to the last recession? - Management highlighted improvements in brand health, data analytics, and agility, positioning the company better than during the last financial crisis [38][39] Question: What is the growth outlook for the RTD category? - Management noted that consumers are willing to pay a premium for ready-to-drink products, indicating strong growth potential in this segment [39][40] Question: What is the outlook for agave supply and pricing? - Management expects agave prices to stabilize over time but noted current strong demand is keeping prices elevated [60][61]