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* Organic net sales growth rises 1% vs -4.6% estimate
* N.America sales rise 12%, driven by tequila
* Moet Hennessy dividend dispute resolved - CEO
* H2 sales expected to grow in all regions - CFO
(Adds detail on Moet Hennessy dispute, Guinness recall)
By Siddharth Cavale
Jan 28 (Reuters) - Drinks group Diageo on Thursday
reported an unexpected rise in underlying net sales growth for
its first half year as people splurged on premium tequila and
bourbon at retail stores in the United States, sending its
shares up as much as 4%.
The coronavirus pandemic has hit beer and spirits makers as
bars, restaurants and night clubs around the world had to close
and as travel was restricted.
But as more people drink at home, Diageo, maker of Johnnie
Walker whisky, benefited from a strong performance in United
States, where it generates 80% of sales from off-licence retail
and grocery stores.
Consumers drank more premium spirits such as Don Julio and
Casamigos tequilas , Ciroc Vodkas and Bulleit bourbon.
North America sales rose 12% in the six months to Dec. 31,
driven by strong consumer demand and a shift towards spirits
over beer and wine. Retailers also replenished more stock ahead
of the holiday season. Beer sales dropped 15%.
In the United States, which contributes 39% to sales and
makes up nearly 45% of Diageo's profits, the penetration of
spirits has grown three times that of beer and wine, Chief
Executive Ivan Menezes said and he was confident these drinking
habits would stick.
While U.S. was a bright spot, the company struggled in other
markets such as Europe and Turkey where sales declined 10% and
in the Asia Pacific where they fell 3%, despite strong
performance in China.
The group, however, expects sales growth in all regions in
the second half year, given easier comparables with last year,
strong momentum in North America, and re-opening of bars and
restaurants in some other regions, chief fianancial officer
Kathryn Mikells told Reuters.
Overall, Diageo, the world's largest spirits maker, reported
a 1% rise in organic net sales growth for the first half,
compared with expectations for a 4.6% drop, according to company
supplied estimates.
"Time for us to eat humble pie. Diageo announced an
incredibly resilient set of H1F21 results this morning, with
beats across the board," Bernstein analyst Trevor Sterling wrote
in a note.
Menezes also said that Diageo had ended a dividend dispute
with LVMH, with the French company agreeing to pay it
181 million euros in dividends from their Moët Hennessy wine and
spirits joint venture.
Diageo had filed arbitration proceedings against Moet
Hennessy last year after it said it was owed dividends for 2019.
"The dividend dispute is resolved and our relationship with
LVMH remains very strong," CEO Menezes said.
Diageo also said it would bring back its non-alcoholic
Guinness beer to markets this year after recalling the new drink
due to "microbial contamination" in November.
Diageo also raised its interim dividend by 2% to 27.96 pence
per share.
(Reporting by Siddharth Cavale in Bengaluru; editing by Arun
Koyyur; Editing by Jane Merriman)
