DEO Diageo Plc

By Saabira Chaudhuri 

LONDON-- Diageo PLC reported weaker profit for the year amid currency volatility but the world's largest spirits maker's key U.S. business delivered strong second-half revenue and executives signaled they expect the growth to continue.

The maker of Johnnie Walker whiskey and Smirnoff vodka reported a net profit of GBP2.24 billion ($2.94 billion) for the year ended June 30, down from GBP2.38 a year earlier. Operating profit, excluding one-time items, fell 1.9% to GBP3 billion on the back of unfavorable currency movements.

Diageo had billed the past year as a transition period, laying the groundwork for better sales growth as the company attempts to turn around its performance in North America, its largest market. The spirits maker has shifted its focus to more closely tracking what is sold to retailers rather than what is shipped to distributors.

Chief Executive Ivan Menezes on Thursday said Diageo's six global brands--Johnnie Walker, Smirnoff, Baileys, Captain Morgan, Tanqueray and Guinness--and its U.S. spirits business are back in growth while scotch and beer have improved.

In the U.S., organic sales were up 3% from a year ago as Diageo delivered a 10% jump in sales in the second half buoyed by North American whiskey brands such as Crown Royal and Bulleit. The results offer a respite to investors after declines in the U.S. pulled down overall results last year, sparking concerns that consumers had fallen out of love with Diageo's mainstream brands like Smirnoff.

"While this is not exactly a brilliant set of results, it's a start," said Exane BNP Paribas analyst Eamonn Ferry.

The company said that "depletions" in the U.S., which is the amount retailers actually sell as opposed to the amount Diageo ships to them, grew by 3%. Chief Financial Officer Kathryn Mikells on a call with reporters said that figure gives Diageo confidence that its stronger performance in the U.S. can continue.

Overall, net sales were down to GBP10.49 billion from GBP10.81 billion. But on an organic basis, which strips out currency movements and acquisitions, net sales were up 2.8%.

The company said it expects net sales to get a GBP1.1 billion lift and net profit to benefit by GBP370 million from exchange rate movements for fiscal 2017 following the recent weakness of the U.K. pound after Britain voted to leave the European Union.

Ms. Mikells said Diageo's business hadn't yet seen any impact from Brexit apart from the currency lift.

The company posted flat sales in Scotch, its largest and most profitable category. Scotch has taken a beating over the past two years as the emerging-markets-heavy business was hit by currency fluctuations, political instability and destocking, while competition from Japanese whiskies and bourbon climbed. On Thursday, the company said declines in Africa, China and Korea offset rises in North America, Europe and Latin America.

Ciroc sales fell 3% for the year after a tough first half in which sales of the high-end flavored vodka plummeted. Ms. Mikells said Diageo is working to broaden Ciroc's appeal beyond its core drinkers who are urban, affluent and black.

In the Asia-Pacific region, organic sales rose 2% from a year earlier although volumes declined 3% as Diageo raised prices.

In Latin America and the Caribbean, organic sales edged up 1% from a year earlier. Diageo in May disclosed that its Latin America sales would take a 2% hit in fiscal 2016 from sales that the company accidentally double booked.

Diageo expects to log mid-single digit revenue growth in fiscal 2017 and will deliver a percentage point of improvement on an organic basis to its operating margin in the next three years.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

July 28, 2016 03:56 ET (07:56 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.