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Hard liquor can take the edge off inflation

PUBLISHED ON 2021-07-30 11:21:00 EST Kathi

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.

Fox Business

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