Diageo, Fevertree Rebound on U.S. Tequila, Cocktail Thirst

Diageo Plc, the world’s largest distiller, and high-end tonic maker Fevertree Drinks Plc signaled the drinks industry is set to benefit from rising U.S. consumption of tequila and cocktails.

Diageo reported a surprise gain in revenue in the six months through December as sales of its tequila brands, which include Casamigos and Don Julio, soared 80% in North America. Fevertree’s 2020 sales dropped 3%, less than expected, as gains in the U.S. offset declines in Britain.

“The pandemic led to a sustained shift to at-home consumption in the U.S., reflecting the growing interest in making long mixed drinks,” Fevertree said, adding it’s confident for 2021 despite uncertainties related to the coronavirus.

Diageo’s North American sales rose 12%, offsetting declines in most other regions. Growth in tequila is partly attributed to Diageo’s 100% agave label, Chief Financial Officer Kathy Mikells said on a conference call with reporters, referring to the ingredient of the liquor which is increasingly becoming popular for perceived health benefits. Casamigos, a tequila brand co-founded by actor George Clooney and later acquired by Diageo, more than doubled its revenue in the period amid a surge in cocktail drinking at home during lockdowns.

Shares of Diageo rose as much as 4.5%. Fevertree, which makes pink grapefruit soda for tequila-based Paloma cocktails, gained as much as 4.4%.

Diageo said it expects to see improvement in sales and profit in the six months through June as the closure of bars and restaurants in the year-earlier period decimated a crucial source of its income.

“Cocktail making continues to evolve -- we’re well beyond the margarita,” Mikells said. The CFO is set to leave in June after almost six years in her role, to be replaced by Lavanya Chandrashekar, head of investor relations and CFO for North America.

Diageo is expecting “a significant improvement” in its performance during the key Chinese New Year celebrations over last year, although demand could be tempered in cities affected by local outbreaks, according to Mikells.

©2021 Bloomberg L.P.

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