Diageo’s Share Price Topples 13% As It Cuts Sales And Profit Guidance

Beverages behemoth Diageo was the FTSE 100’s biggest faller on Friday as it reduced its revenues and profits forecasts for the first half of its financial year.

At £28.20, the Diageo share price was trading 13% lower in end-of-week business.

In an unscheduled trading update, the Captain Morgan and Johnnie Walker maker said it expected to experience slower growth between June and December compared with the previous six-month period.

LAC In A Lather

While the company said sales momentum has continued in four of its five regions, it added that “a materially weaker performance outlook in Latin America and Caribbean” meant it was scaling back its full-year forecasts.

Organic net sales in the LAC region — which made up 11% of the group total during the 12 months to June 2023 — are tipped to decline 20% during the first half of this year.

Diageo said that “macroeconomic pressures in the region are resulting in lower consumption and consumer downtrading.”

“These impacts are slowing down progress in reducing channel inventory to appropriate levels for the current environment,” it added.

Diageo now expects organic operating profit growth for the first half to decline versus the same period a year earlier. This is due to “LAC’s declining net sales, increased trade investment, lower operating leverage and adverse mix resulting from downtrading,” it said.

The firm added that it expects inflationary pressures to moderate, with further pricing actions planned to help offset its impact on profits.

Sales Improvement Tipped For H2

For the second half, the FTSE firm said that “we expect to see a gradual improvement in organic net sales and organic operating profit growth from the first half… while we continue to invest in marketing, and in the business, to drive long-term sustainable growth.”

In its other regions, Diageo said that in North America “we expect gradual improvement in organic net sales growth” in the first half of this year versus the second half of financial 2023 “while maintaining distributor inventory in line with historical levels.”

Net sales growth is also forecast to improve half-on-half in Africa, but in its Europe and Asia Pacific regions, sales growth is tipped to slow over the period.

Diageo said that “growth continues to be strong [in Europe] despite geopolitical tensions escalating in the Middle East,” adding that in Asia “we continue to see momentum with good growth” despite a slower-than-predicted recovery in China.

Medium-Term Guidance Maintained

Looking beyond the current period, Diageo reiterated its expectation of growing organic net sales between 5% and 7% over the medium term.

It said that “we expect operating profit to grow broadly in line with organic net sales growth,” adding that profit should eventually increase ahead of revenues “as inflation moderates and productivity from our supply agility program flow through.”

Diageo said that its bullish forecast “is underpinned by our participation in the attractive segment of International Spirits, which is growing ahead of [the total alcoholic beverages market], sourcing from Beer and Wine; our advantaged portfolio and footprint which enables us to grow ahead of spirits; and the investments we will continue to make to grow share.

Royston Wild owns shares in Diageo