Diageo Plans $2.6 Billion Buyback as Earnings Accelerate

(Bloomberg) -- Diageo Plc plans to buy back up to 2 billion pounds ($2.6 billion) of stock as earnings shift into higher gear at the world's largest distiller.

The latest move to return cash to shareholders follows a buyback of 1.5 billion worth of stock in the year through June. The move comes as the owner of Johnnie Walker whisky reported sales and earnings slightly above expectations for the period. The shares rose 0.4 percent in early London trading.

The “full-year results confirm that the business continues to be run hard on both costs and top-line,” Jefferies analysts led by Ed Mundy wrote in a note to investors. Diageo is “a business in change.”

Diageo had said that the benefits from productivity initiatives would keep coming in the second half. The company has joined other consumer-product companies, such as Unilever and Nestle SA, in adopting shareholder-friendly measures as activist investors take a growing interest in the sector.

While looking at “‘bolt-on acquisitions” and making other investments in the business, Diageo will also continue to look at returning cash to shareholders as opportunities arise, Chief Financial Officer Kathy Mikells said on a call with reporters.

For the full year, organic net sales rose 5 percent, the London-based company said in a statement Thursday. Operating profit before exceptional items gained 8 percent. Both figures were just above analyst estimates.

Although cost cuts boosted Diageo's operating margin, the company said that measure was held back by higher marketing spending, which also weighed on brewer Anheuser-Busch InBev NV, which splashed out on World Cup-related advertising in the latest period. Sales were boosted by a strong performance for spirits like bourbon in the U.S. and gin in Europe, with vodka broadly weak.

Last year, Diageo agreed to buy Casamigos, a tequila backed by the actor George Clooney, in a deal worth as much as $1 billion. It's also re-entered the Irish whiskey category, in which it hadn't competed since selling Bushmills to Jose Cuervo in 2014.

To contact the reporter on this story: Thomas Buckley in London at tbuckley25@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III