Diageo plc (ADR) (DEO)

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The Company is engaged in the premium drinks business with a collection of international brands.

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Avatar NetscribeConsGds (94.43) Submitted: 1/24/07 1:09 AM : Start Price: $74.01 DEO Score: 14.16

Diageo is the world's leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, wine and beer categories. With a market spread across 180 countries, its brands consortium engrosses: Smirnoff, Johnnie Walker, Guinness, J and B, Baileys, Captain Morgan, Cuervo, Tanqueray, and Beaulieu Vineyard and Sterling Vineyards wines.

In order to take advantage of booming Chinese markets, Diageo has plans to buy 43% stake in Sichuan Chengdu Quanxing, a Chinese company The Chinese spirits industry is set to surpass Japan as the world's second-largest spirits maker with a value of $11.4 billion. Moreover the rising disposable income of Chinese people should boost the demand for alcohol in the next five years. This buyout of Quanxing will help Diageo to sell its liquor through their distribution network, which is spread across China.

Diageo’s higher investment in brands, improved sales execution and increased momentum behind innovation has ensured a top-line growth of 6% for the fiscal 2006. Further, Diageo witnessed volume growth in all of its geographical segments. Moreover spirits brands which represents 60% of total revenue has seen a rise of 8%. However, the European markets were severe on Diageo with only 1% volume growth. But the company is retaliating the challenge with the roll out of new products like Baileys’ flavors and Smirnoff Black to a wider consumer base in Europe. This should assist Diageo to post a turnaround in the European market.

Additionally, management’s continuing efforts on brand building, marketing campaigns and launching of new products should enable them to sustain their revenue growth rate at 4-6%. Diageo’s expansion in emerging markets and a shift towards premium brands should enhance revenue growth, thus making the company a healthy investment proposition.

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Avatar NetscribeConsGds (94.43) Submitted: 5/07/07 7:31 AM

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The intensely competitive premium drinks market is currently going through the phase of consolidation and realignment. This has sparked off battle amongst alcohol players and the repercussion is clearly seen through pricing pressure tactics. It is now up to Diageo to strike a balance between quality products and the price paid for such products. Diageo has made its decision and the distiller along with Radico Khaitan, plans to launch two whisky brands in the deluxe segment in the next 18 months. This move should push up the revenue growth rate as the deluxe segment enjoys the fastest growth rate of 30% among whiskies.

The company recognizes that in order to maintain its leadership position in the Progressive Adult Beverage (PAB) category, it needs to expand its product offerings to a consumer base that demands innovation and variety. During mid-April, Diageo has launched innovative products like Smirnoff Raw Tea, added flavor to its Smirnoff Ice and lineups Captain Morgan Parrot Bay. To sustain its global innovation strategy, Diageo has made a minority investment in Nuvo, a new ultra-premium effervescent blend of fine French vodka, French sparkling wine, and exotic fruit nectar.

Diageo has displayed a strong performance to the end the fiscal 2006, with increased sales in North America and International market and a stable profit growth in Europe. The spirits brands, especially Scotch where net sales grew 11% benefited from increased investment in marketing. As a result of this strong start Diageo has raised its guidance for organic operating profit growth to 8% for the full year. Looking at these positive aspects it seems that Diageo should outperform in the coming fiscal.

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Diageo plc (ADR) (DEO)

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