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Diageo Sells Off Luxury Hotel Gleneagles: More in the Cards? - Analyst Blog

Zacks Equity Research
Updated

Leading U.K.-based brewer Diageo plc DEO sold off its luxury hotel and golf resort Gleneagles located in Scotland, yesterday to cut costs and boost profits and as a measure to focus on its core brands. The hotel was divested to private-equity firm Ennismore Capital for an undisclosed amount. The move re-affirmed the company’s plans to focus more on its core business of selling spirits.

Diageo attempted to sell Gleneagles in 1998 — bought from British Rail in 1984 — but failed since it did not get the expected price.

The hotel business of Gleneagles generated revenues of £43.5 million and an operating profit of £2.6 million with a return on invested capital of 4% based on the book value for the year ended Jun 30, 2014.

The deal is expected to provide a temporary relief to the U.K.-based brewer from its declining profits by shedding underperforming assets. In the last reported third quarter of fiscal 2015, net revenue declined 0.7% and volume dipped 0.8% year over year mainly in its core brands which performed below expectations in the emerging markets.

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Analysts are of the opinion that Diageo should consider selling its other underperforming assets as well. Investors also speculate that the company is expected to sell off its small wine portfolio. Per Bloomberg, Diageo  commented that there are some interested buyers for the small wine business which includes brands like Blossom Hill and Yellow Tail.

Currently, Diageo has a Zacks Rank #3 (Hold). Investors interested in the beverage sector may consider Constellation Brands Inc. STZ carrying a Zacks Rank #2 (Buy). A couple of consumer staples stocks worth considering are Tyson Foods Inc. TSN and The WhiteWave Foods Company WWAV with a Zacks Rank #2.

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TYSON FOODS A (TSN): Free Stock Analysis Report
 
CONSTELLATN BRD (STZ): Free Stock Analysis Report
 
DIAGEO PLC-ADR (DEO): Free Stock Analysis Report
 
WHITEWAVE FOODS (WWAV): Free Stock Analysis Report
 
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Zacks Investment Research