Diageo shares sink after profit warning

Diageo, the renowned brewer and distiller, saw its shares plummet on Friday, tumbling by 15% to 2,748.00 pence each on the London Stock Exchange (LSE: DGE). The decline follows the company’s announcement that it anticipates challenges in sales growth, specifically in Latin America and the Caribbean (LAC) region.

Despite an initial expectation of a gradual improvement in organic net sales growth during its first half, Diageo conveyed concerns regarding the LAC market, constituting nearly 11% of its net sales value. Sales in this region are projected to plummet by 20% year-on-year on an organic basis over the first half of the financial year.

The company attributed this decline to macroeconomic pressures affecting consumption patterns, leading to consumer downtrading and a slowdown in reducing channel inventory. While momentum persists in four of its five global regions, Diageo cautioned that growth in the first half of 2024 is poised to be slower than the preceding financial year.

In a statement, Diageo outlined its strategy to offset challenges by continuing investments in additional advertising and promotion in other regions. It acknowledged the presence of cost inflation, which is expected to be mitigated, in part, by pricing actions.

Consequently, Diageo anticipates a decline in organic operating profit growth for the first half of the financial year compared to the prior year, where it had achieved a notable 9.7% growth. This contrasts with the company’s January guidance, which had indicated an expected organic operating profit growth between 6% and 9% for the period spanning financial years 2023 to 2025.

Despite these challenges, Diageo remains optimistic about its medium-term performance, expressing confidence in its portfolio’s strength and emphasizing its “deep consumer insights.” The company believes these insights will contribute to sustainable long-term growth and generate value for shareholders.

Diageo shares have experienced a considerable downturn, with a 23% decrease year-to-date in 2023 and a 26% decline on a year-over-year basis. The company expects a gradual recovery in organic net sales and operating profit growth during the second half of 2024 compared to the first half.