Diageo Increases Brand Awareness and Sales, Proves Alcohol Sells despite Economy

The world largest alcohol distributor, Diageo (DEO) reported stellar 2nd half of last year earnings and revenue numbers. The maker of Smirnoff Vodka and Johnnie Walker Scotch showed results of $1.9Billion in profit and reiterated full year guidance despite what is seen as uneven economic conditions in its largest market, the US.

The numbers overall represented 9% growth and guidance kept the company on pace for a further 9% in organic growth throughout 2008. Sales were up over 6% to $8.4Billion. North American results spoke for themselves for the company, 8% growth, on strong sales of Johnnie Walker, Smirnoff and Captain Morgan. Despite the weakening US economy, Diageo put the pedal to the metal in advertising, increasing spending in that area. This clearly worked, creating far more brand awareness than in previous periods. Diageo is also trying to expand its line-up of liquor offerings, after deciding not to go after Absolut Vodka, the company purchased a 50% stake in Ketel Vodka.

The real successes came Internationally, with growth rates of 20% and 16% for profits and revenue respectively. Investors were very satisfied with the quarter and the guidance, sending shares up 4% on the day. The company is by far the world leader in Alcohol and this is another chance to snap up shares relatively cheaply. A P/E ratio in the mid to high teens for this Industry leader is more than fair and with a dividend yield approaching 4% it screams Buy, especially when considering the strong International and Emerging Markets push that Diageo is undertaking.

The fact of the matter is, Alcohol sells despite economic downturns or slowdowns. When it comes to safe havens, the gurus of Investing always talk about the Consumer stocks that will never go away, but Alcohol is and has proven once again it is one of the strongest selling consumables on the planet. And that is something worth Investing in.

Disclosure: Author owns DEO

Life Certainties: Death, Taxes and Alcohol

When times are good and when times are bad, it's a fact of life that people will drink either way.
Probably one of the most sustainable business models on the planet is making various alcohols. So for those interested in the long term investment opportunities, where would you start looking?

Well in your own liquor cabinet of course! Any bottles of Johnnie Walker scotch lying around? Maybe some Smirnoff vodka? Perhaps some Cuervo tequila is more your style? Oh you're a beer drinker is that it? Ever had a Guinness?
What do all those brands have in common, well they are all owned and distributed by Diageo (DEO).

This is a company that has had a very good 8 months with the stock moving from a 52 week low of $65/share to a high of $87. With the stock sitting at $85, is it still worth looking at? I say yes.
Sales growth is increasing worldwide, but most notably in North America, where trends of late are showing spirits are making their way into more homes while traditional beer drinkers are turning away. Maybe it's the whole carbs craze, but either way, the numbers don't lie.
Diageo sits with a P/E of about 18 right now, and pays almost 2.5% in dividends, which is very reasonable for this type of company.

Yes, Diageo is the biggest player in terms of market cap in the alcohol space, but it is growing and relatively cheap compared to it's main competitors, which include the likes of:
Brown-Forman (BF.B), which owns Jack Daniels, Finlandia vodka and Southern Comfort.
Constellation Brands (STZ), which controls Constellation wines and spirits and Crown products.
As well as the beer kings Molson Coors Brewing (TAP) and Anheuser-Busch (BUD).

The age old adage of "invest in what you know and buy yourself" certainly applies to these investments, so it's a matter of opening up the good cupboard, taking out your fine bottle of scotch and going from there. If it happens to be a Johnnie Walker, then by all means get on the Diageo train.

Disclosure: Author holds no positions in the above mentioned companies