Diageo is the world's leading producer of branded premium spirits. It also produces and markets beer and wine. Brands include Johnnie Walker blended scotch, Smirnoff vodka, Crown Royal Canadian whiskey, Captain Morgan rum, Baileys Irish Cream, and Guinness stout. Diageo also owns 34% of premium champagne and cognac maker Moet Hennessy, a subsidiary of French luxury goods maker LVMH Moet Hennessy-Louis Vuitton, and a near-55% stake in India's United Spirits.
In our opinion strong intangible assets and a cost advantage are at the heart of Diageo's wide economic moat. DEO’s total alcohol product portfolio is far from complete, it contains 14 of the top 100 global premium distilled spirits brands and 7 of the top 20.
The company has been operating amid challenging market conditions. Demand for its beverages are down in core markets of late. Additionally, unfavorable foreign exchange rates have weighed on results in recent months. Diageo plans to put calorie and other information on some of its products in response to a more health-conscious trends. Recent product introductions and cost-cutting efforts should buoy results. Sales and earnings should advance at a solid clip over the 3- to 5-year pull. Finances are no cause for concern. The company generates strong cash flow. Consequently, Diageo is well positioned to handle its debt load and fund its expansion in the years ahead.
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Significant brand strength in premium spirit segment
Extensive product portfolio across categories and price points
Widespread prodcution facilities
Stringent advertising regulations
Booming trade of conterfeit alcohol
Dependence on third parties for raw materials
Growing sprit and wine markets
Increasing disposible income and cultural shift towards alcoholic beverages in Asia
Favorable trends in travel retail
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