Hard liquor can take the edge off inflation
By Kathi on Jul 30, 2021 | 02:30 AM IST
Johnnie Walker distiller Diageo
among those to beat analysts’ sales expectations
Liquor companies are taking inflation in their stride. A
push into premium brands, coupled with the fact that more drinkers are
switching to spirits from beer in key markets, should help maintain their edge.
Johnnie Walker distiller Diageo, Budweiser brewer Anheuser-Busch
InBev and Swiss food giant Nestlé beat analysts’ sales expectations across the
board in results reported Thursday. But the ability of these big consumer-goods
companies to protect profit margins from cost inflation has been mixed.
Liquor specialists seem to be performing the best. Diageo
expects to grow its margins in the financial year through next June, despite
higher costs for commodities, shipping and packaging. Analysts also increased
profit expectations for Italian competitor Davide Campari-Milano, the maker of
brands such as Aperol and Grand Marnier, after it released strong results
earlier this week.
Liquor specialists seem to be performing the best. Diageo
expects to grow its margins in the financial year through next June, despite
higher costs for commodities, shipping and packaging. Analysts also increased
profit expectations for Italian competitor Davide Campari-Milano, the maker of
brands such as Aperol and Grand Marnier, after it released strong results
earlier this week.
Makers of kitchen and bathroom basics have the toughest
challenge. Nestlé, Unilever and Reckitt have all lowered their margin guidance
over the last few days. One issue is timing. In certain European markets,
manufacturers are locked into annual price contracts with supermarkets and will
only be able to push through increases when these expire. But it is also harder
to charge more for basic goods like paper towels and cleaning products.
Shares in Diageo and Campari currently trade at 27 times
and 42 times expected earnings, respectively, a hefty premium to the wider
consumer staples sector. Investors are paying a stiff price for protection from
inflation, among other things. So far, so reassuring: Higher costs are going
down easy for liquor brands.