Beverages giant A.G. Barr (LSE: BAG) has seen its share price edge to its highest since late September following the release of bubbly full-year numbers.
It advised that revenues are expected to have clocked-in at £257m during the 12 months to January 2017, up 1.5% on a like-for-like basis.
And it said that trading had strengthened during the second half of the period, this improved performance having been helped by “successful product innovation, specifically through the launch of IRN-BRU XTRA and Rubicon Spring.”
On the flip side, however, the soft drinks market remains highly difficult, the company citing latest IRI data which showed industry volumes rising just 1.5% during the 48 weeks to January 1 and value creeping only 1% higher.
And the manufacturer noted that “the uncertain economic environment indicates that 2017 will be another challenging year for UK-based businesses.”
Tough as Irn
But the firm is throwing the kitchen sink to mitigate the impact of these troubles.
The company is ploughing vast sums into the development of new, low-calorie and low-sugar labels in response to changing consumer choices. And recent success for the likes of IRN-BRU XTRA underlines A.G. Barr’s skill when it comes to product development, not to mention the power of its brands.
Indeed, the brilliant pricing power of its drinks should prove a powerful weapon in helping the business battle rising costs.
The company has also undergone significant restructuring to safeguard margins, and today said: “In the final quarter [we] successfully implemented a company-wide reorganisation that has both enhanced our organisational capability and reduced our overhead base.”
The City certainly believes these measures should drive earnings at AG Barr higher again following recent bottom-line trouble.
The beverages play is expected to recover from an anticipated 2% earnings drop in fiscal 2017 with growth of 4% and 2% in 2018 and 2019 respectively.
Subsequent P/E ratios of 17.2 times and 16.8 times may not be anything to get excited about at first glance. But I reckon the formidable brand power of AG Barr’s drinks, not to mention the firm’s supercharged efforts to reduce costs, should help it to provide excellent returns in the years ahead.
And the same can be said for Diageo (LSE: DGE), in my opinion.
The company’s huge product stable, which includes Smirnoff, Guinness and Captain Morgan, boasts labels that are extremely popular with drinkers across the world. And like AG Barr, Diageo is increasing investment in its existing product ranges, as well as new, fast-growing drinks segments, to keep the top line chugging higher.
For example, just this week Diageo announced it was spending €25m to open a new distillery at its Dublin base to roll out its new brand, Roe & Co. The business has noted a recent uptick in demand for Irish whiskey.
On top of this, Diageo’s huge exposure to North America should also help sales move steadily higher as economic growth Stateside clicks through the gears.
City brokers expect company earnings to detonate 18% in the year to June 2017, and a further 9% in the following period.
While these number result in toppy P/E ratios of 20.9 times and 19.1 times, I reckon the huge growth potential created by Diageo’s broad geographic spread and industry-leading labels merits such a premium.
I think both AG Barr and Diageo are splendid stocks for those seeking long-term growth.