Diageo falls to three-year low after warning sales in Latin America lack clout
Diageo PLC (LSE: DGE) shares fell over thirteen percent to 2,808.5p, around three-year lows, as the Smirnoff and Guinness maker warned of slower growth in the second half of this year following a “significantly” weaker sales performance in Latin America and the Caribbean. Diageo falls to a three-year low after warning that sales in Latin America lack impact.
The spirits maker said that organic sales in Latin America and the Caribbean (LAC), which represent nearly eleven percent of Diageo’s net sales value, are now expected to decline by more than 20 percent year-on-year in the first half of fiscal 2024.
“We have continued momentum in four of our five regions, but at group level, in the first half of 2024, we now expect to see slower growth than the second half of 2023” Diageo said in a statement.
The company now expects organic operating profit growth for the first half of fiscal year 2024 to decline compared to the first half of 2023, mainly due to LAC’s declining net sales, increased trading investments, lower operating leverage and negative mix due to downtrading.
Other regions expect to continue to invest additional advertising and sales expenditure before net sales.
In North America, the company expects a gradual improvement in organic net sales growth in the first half of fiscal 2024 compared to the second half of 2023, while maintaining distributor inventory in line with historical levels.
In Europe and the Asia-Pacific region, it sees continued momentum, albeit slower than in the second half of FY 2023.
It expects that there will be continued, albeit subdued, cost inflation, which will be partly offset by pricing measures.
Looking ahead to the second half of 2024, Diageo forecasts a gradual improvement in organic net sales and organic operating profit growth from the first half and will continue to invest in marketing and operations to drive long-term sustainable growth.
Diageo said it continues to believe in the fundamental strength of the business and expects to deliver organic net sales growth of between five and seven percent in the medium term.
Analysts at UBS said weakness in Latin America and the Caribbean more than offset growth in the other divisions.
“This is due to macro pressures leading to lower consumption and consumer decline, which in turn slows the reduction of inventories.”
Diageo’s biggest brands in Latin America include Scotch whisky Johnnie Walker, Old Parr and Buchanan’s, which account for two-thirds of its business in the region, according to its website, along with other global favorites like Smirnoff and local brands like Ypioca cachaça in Brazil, Venezuela’s Caciqueno and Guatemala’s Zacapa rum.
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