Diageo: lifting spirits - FT.com People have finally been driven to hard liquor by the global economic downturn; beer, sadly, is no longer enough. The volume of spirits sold in the US has outpaced that of beer for over two years, and in November was about 6 percentage points higher says Deutsche Bank. Similar trends are evident around the world. That has been good for Diageo. The British drinks group derives about three-quarters of its business from its spirit brands, and on Thursday announced a 16 per cent increase in its first-half earnings per share. But even though Diageo's beer division has performed well, as drinkers abandon beer in favour of the strong stuff, some investors may wonder why Diageo insists on holding on to it. On the face of it, the group has a sound argument. During the first half, organic sales of beer grew at 7 per cent as Diageo's emerging markets more than offset contracting developed ones. That is pretty good. But there is a risk. Beer drinkers are fickle and frequently switch brands. As almost half Diageo's beer sales are of Guinness stout, should sentiment change against just this one brand, it would materially impact Diageo's earnings. One option would be a sale of the entire beer division, perhaps to Anheuser Busch-Inbev or SABMiller, which could use the additional emerging markets exposure. Given the growth of the division (and particularly Guinness), it could fetch a good price. Assuming beer sales make up about 22 per cent of Diageo's expected full-year revenues of £10.7bn, as they did last year, a sales multiple of 2.5 times (comparable to its peers) would value the division at £6bn - equivalent to about two-thirds of Diageo's net debt, or almost its entire equity. Not only would a sale allow the company to focus almost exclusively on the higher-growth spirits market, but it would ensure that it does not have too many hops in the one barrel.