Diageo: tougher trading mixes a whisky sour for new bar captain

Once chief executives get their hands on Diageo’s drinks cabinet, they are reluctant to let it go. After 10 years as bar captain, Sir Ivan Menezes will hand the keys to Debra Crew, currently chief operating officer. 

Crew, a seasoned consumer goods executive, will benefit from Menezes’ efforts to tidy up the group behind Johnnie Walker whisky and focus it on premium spirits. Yet with sales growth fizzling in Diageo’s key US market, it may win fewer toasts from investors.

Menezes hands over a company in better shape than the one he inherited. In 2013 Diageo was at the tail-end of an emerging markets acquisitions spree that coincided with a slowdown in markets such as China. Currency volatility added to its woes. Writedowns of assets ensued. For several years his tenure looked shaky. 

Menezes sold off lower-end brands and other peripheral assets such as wine. He went in search of top shelf spirits. Despite initial scepticism, acquisitions such as the $1bn purchase of George Clooney’s tequila Casamigos in 2017 have paid off. Diageo is now the global market leader by net sales value in areas such as tequila and Scotch whisky.

Shares have gained 72 per cent since July 2013, even accounting for a 2.7 per cent drop year to date. This compares to a 13 per cent rise in the wider FTSE 100 over 10 years. Diageo is valued at 21.3 times forward price-to-earnings, according to S&P Capital IQ data, in line with peer Pernod Ricard. 

Diageo has struck a confident tone about recent US trading. This is despite first-half organic net sales only growing 3 per cent. They fell 4 per cent on a volume basis. During the same period a year earlier, net sales rose 13 per cent.

There will be an element of market normalisation following a burst in sales during the Covid-19 lockdowns. But questions remain about how US consumer confidence will hold up, particularly given recent turmoil in banking markets. If Crew has M&A in mind, she should not overspend at the bar.

Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore