Diageo Earnings: U.S. the Weak Spot, but Price Elasticity Remains Lower Than the Broader FMCG Group

Diageo's preliminary fiscal 2023 results provided further confirmation that consumers are scaling back beverage consumption, but price elasticity remains below that in other consumer staples categories, and we think this supports our thesis that the large-cap distillers have some of the strongest pricing power in the group. We are retaining our GBX 3,200 fair value estimate and our wide moat rating. After a slight derating in the stock in the second quarter, the shares now trade only slightly above our valuation, and Diageo now trades at its lowest level since the early days of the post-COVID-19 reopening of on-premises establishments. However, the spirits category is one of the most cyclical in the staples sector, and if consumer sentiment continues to weaken, Diageo's operating environment could deteriorate further.