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Be Prepared For Diageo plc’s Upcoming Results

Diageo (LSE: DGE) (NYSE: DEO.US), the FTSE 100 drinks giant, is due to announce its annual results on Wednesday this coming week (31 July).

At the time of writing, Diageo’s shares are trading at 2,020p — up 22% from a year ago compared with a 19% rise for the Footsie.

How will Diageo’s business have performed in 2012/13 compared with the previous year? And will the results justify the performance of the shares? Here’s your cut-out-and-check results table!

  FY 2011/12 Forecast
FY 2012/13
Forecast
FY growth
Organic net sales* £10.76bn £11.37bn +5.7%
Earnings per share (EPS)** 94.2p 103p +9.3%
Dividend per share Final: 26.9p
Total: 43.5p
Final: 29.6p
Total: 47.7p
+9.7%

* Excludes excise duties
** pre-exceptional items

Within its annual results for the year ended 30 June 2011, Diageo set out its medium-term targets for the business:

“Average organic top line growth of 6%, organic operating margin improvement, with the first 200 basis points [1 basis point = 0.01%] achieved in the next three years, and double digit EPS growth. Achievement of these aims would underpin even stronger dividend growth”.

At the nine-month stage of the company’s 2012/13 fiscal year the board said: “We remain confident that Diageo’s performance continues to be in line with our medium term guidance”.

Top line

Analyst forecasts for 2012/13 have organic top-line growth at £11.37bn (up 5.7%) — only a shade below Diageo’s 6% target.

Net sales are typically weighted slightly to the company’s first half, and the weighting is very consistent: 53.5%, 53.5%, 53.2%, 54.4%, 53.0% and 53.5% — giving a six-year average of 53.5%.

H1 sales came in at £6.01bn, and the analyst full-year forecasts put the H1/H2 weighting bang in line with the historical average. Therefore, H2 sales should be around £5.33bn. If, however, Diageo hits its 6% target we’d be looking at £5.37bn for H2 and a full-year number of £11.41bn.

Operating margin

Diageo’s organic operating margin improved 60 basis points (bps) during 2011/12. For H1 2012/13 the expansion was 110 bps. If that level were to be maintained for the full year, it would put the company well on track to achieving the 200 bps expansion target by 2013/14: an improvement of just 30 bps over the next year would do it.

Earnings

Diageo comfortably achieved its double-digit earnings growth target during 2011/12, with EPS increasing 12.7%. Analyst forecasts of 103p EPS for 2012/13 give an increase of 9.3%, representing a slight miss on the board’s target of double-digit growth. However, the company would only need to do EPS of 103.62p to bring growth up to 10%.

Dividend

Diageo said achievement of its targets for the top line, margin and EPS would underpin “even stronger dividend growth” than previously seen. The dividend uplift of 7.7% for 2011/12 was ahead of the 6% increase of the previous year. Analysts are expecting even more from the dividend this year: growth of 9.7%. The H1 payout was 18.1p, so if the analysts are on the money, shareholders should be on the lookout for a final dividend of 29.6p next week.

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> G A Chester does not own any shares mentioned in this article.