Factors Likely to Influence Diageo's (DEO) Earnings in 1H22

Diageo Plc DEO is scheduled to release interim results for the first half of fiscal 2022 on Jan 27. The company has been benefiting from the recovery in consumer demand across markets. However, continued disruptions in Travel Retail, continued inflationary pressures and currency headwinds have been hurting its performance.

Notably, the alcoholic beverage company, which reports on a half-yearly basis, posted robust sales, operating margin and earnings in fiscal 2021, driven by strong growth across all regions, led by gains in North America. It recorded pre-exceptional year-over-year earnings per share growth of 7.4% (in local currency) in fiscal 2021, with an 8.3% sales growth.

Key Factors to Note

Strong consumer demand in the off-trade channel and recovery of the on-trade channel in key markets are likely to have aided Diageo’s top and bottom lines in the first half of fiscal 2021. The company has been witnessing strong demand for its tequila brands and Johnnie Walker whisky, along with continued strength in off-premise sales for premium spirits like tequilas, liqueurs and bottles of Johnnie Walker scotch. The demand trends are likely to have boosted sales in the first half of the fiscal year.

In the fiscal 2021 earnings call, the company anticipated market growth in North America to return to historical levels of mid-single digits in fiscal 2022, indicating optimism for the first half’s performance. It expected growth to be driven by the benefits of lapping soft on-trade comparisons.

The company has also been gaining from consumer-led marketing and innovation. Its first half’s performance is expected to have benefited from efforts to leverage its existing e-commerce capabilities and accelerate investments in the online platform to cater to online demand.

On its last earnings call, the company expected organic sales momentum to continue throughout fiscal 2022. It anticipated growth to be driven by the resilience in the off-trade channel as well as the recovery in on-trade, offset by the potential impacts of future COVID-19 waves and continued disruption in Travel Retail. It predicted recovery in sales volumes, positive channel mix and premiumization trends to aid the operating margin.

However, on its last earnings call, the company anticipated continued near-term volatility in some markets. Driven by the continued international travel restrictions, the Travel Retail business is expected to have witnessed a soft performance in the fiscal first half. Although the Zacks Rank 3 (Hold) company anticipated further easing of on-trade restrictions in Europe and Turkey to aid the Guinness business, it expects continued disruption in Travel Retail for fiscal 2022. Moreover, it anticipates the continued impacts of rising inflationary pressures to partly hurt margins.

Looking for Lucrative Picks? Check These

Here are some companies you may want to consider in this earnings season.

Coca-Cola FEMSA KOF is expected to register top and bottom-line growth when it reports the fourth-quarter 2021 numbers. The Zacks Consensus Estimate for KOF’s quarterly revenues is pegged at $2.5 billion, which suggests growth of 3.2% from the prior-year quarter’s reported figure. The company currently has a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Coca-Cola FEMSA’s quarterly earnings has been unchanged in the past 30 days at 91 cents per share, suggesting 23% growth from the year-ago reported number. KOF has delivered an earnings beat of 9.7%, on average, in the trailing four quarters.

The Estee Lauder Companies EL is likely to register top and bottom-line growth when it reports the fourth-quarter 2021 numbers. The Zacks Consensus Estimate for its quarterly revenues is pegged at $5.5 billion, which suggests growth of 13.2% from that reported in the prior-year quarter. EL currently has a Zacks Rank #2.

The Zacks Consensus Estimate for Estee Lauder’s quarterly earnings has moved up by a penny in the past seven days to $2.64 per share, suggesting growth of 1.2% from the year-ago quarter’s reported number. EL has delivered an earnings beat of 37%, on average, in the trailing four quarters.

Coty Inc. COTY currently has a Zacks Rank #2. COTY is anticipated to register top line growth when it reports the fourth-quarter 2021 results. The Zacks Consensus Estimate for Coty’s quarterly revenues is pegged at $1.6 billion, indicating an improvement of 13.8% from the figure reported in the prior-year quarter.

The Zacks Consensus Estimate for Coty’s bottom line has moved up by a penny in the past seven days to 12 cents per share. However, the consensus estimate for COTY suggests growth of 29.4% from the year-ago quarter’s reported figure.

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