Diageo to Pump $115M into Whisky - Analyst Blog

Diageo plc DEO, is geared to increase its presence in the whiskey category. In fiscal 2012 it announced plans to invest £1 billion ($1.64 billion) to increase Scotch whisky production. As a part of this strategy, Diageo recently declared that it further intends to strengthen the category by building a 1.8 million proof gallon distillery and six barrel storage warehouses in Shelby County, KY. The finalization of the $115 million construction project, however, is subject to approval by the local government.

The new facility, spread over 330 acres of land, will facilitate the distillation of several current and future Diageo bourbon and North American Whiskey brands. Diageo remains on track to increase its presence in the fast growing North American whiskey sector armed with its leading flagship and new-to-world brands. Moreover, per Nielsen market research company, bourbon is currently the fastest growing spirits category in the U.S.

In addition to the construction of the new distillery, Diageo announced its plans to invest £30 million ($49 million) to expand the Clynelish Scotch Distillery located in Sutherland town of Brora, Highland Council, in the beginning of calendar 2014. Moreover, it has undertaken a £25 million ($41 million) expansion plan in the Glen Ord Distillery, to increase its production capacity. Diageo also plans to increase the capacity at Teaninich Distilleries by two-fold and build a distillery at Alness in the near future.

In the third quarter of fiscal 2014, Diageo's North American segment's organic sales climbed 1.2% backed by strong business of the reserve brands. However, growth rate was slower than the previous quarter as organic sales growth was very high in the comparable quarter of the previous year. U.S. spirits delivered another good quarter with strong growth from super and ultra-premium brands and new innovation launches.

London-based Diageo owns brands such as Johnnie Walker, Smirnoff and Guinness and has been exploring opportunities to expand geographically through acquisitions. The Zacks Rank #4 (Sell) company has been witnessing declining total volume and organic sales for the past few quarters due to unfavorable foreign exchange.

Other stocks in the consumer staples sector worth considering are The Hain Celestial Group Inc. HAIN, B&G Foods Inc. BGS and Inventure Foods Inc. SNAK. All the stocks carry a Zacks Rank #2 (Buy).

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