Diageo falls short of analyst predictions 

Diageo shares dropped more than 3% to €32.88 which is nearly 30% lower than pre-pandemic levels

Diageo’s results for the six months to December, as predicted in its November warning, fell below analyst expectations. Shares dropped more than 3% to £27.50 (€32.88), nearly 30% lower than their pre-pandemic peak. 

Sales declined by 1.4% to $11.0 billion (€9.7 billion), with organic sales down 0.6%. Organic operating profit slipped 5.4%, but would have increased by 0.9% without Latin America. Reported operating profit declined by 11.1% to $3.3 billion (€2.9 billion).

Organic net sales excluding Latin America saw a 2.5% increase, supported by growth in Asia Pacific, Africa, and Europe, according to the Drinks Business. However, this progress was somewhat dampened by a 1.5% decline in the crucial North America region, responsible for roughly half of Diageo’s profits.

Debra Crew, chief executive officer of Diageo, attributed Latin America’s “materially weaker” performance to shifting consumer sentiment and high inventory levels. She expressed dissatisfaction with the overall results but anticipated resolving the overstocking issue by summer. However, organic net sales in the region are projected to decline by up to 20% in the early months of this year compared to 2023.

In North America, Diageo faced a 2% drop in organic sales, with tequila sales falling by 5%, primarily due to a 14% downturn in Casamigos. The company also noted a 4% decline in vodka sales and a 13% dip in Johnnie Walker sales, signalling a return to normalcy after the demand surge in 2022. 

Across Asia, sales grew by 6%, fueled by an 18% surge in China and a 9% increase in India.

Diageo expects a gradual uptick in organic net sales growth in the latter half of the fiscal year and maintains its medium-term projection of organic net sales growth between 5% to 7%. Furthermore, the company plans to boost its dividend payout to shareholders by 5% and has returned $1 billion (€ 9.2 million) to shareholders through share buybacks within the past year.

Debra Crew, chief executive officer, said:  “We have taken action and have further plans to reduce inventory to more appropriate levels for the current consumer environment in the region by the end of fiscal 24. This is a key priority.”