Diageo Bottoms FTSE 100 After Sales Slump in Latin America

By Michael Susin

Diageo shares fell after the group reported a sharp fall in sales at its Latin American and Caribbean divisions.

Shares at 1111 GMT are down 3.2% to 2,748.5 pence, and down 20% on a 12-month basis, currently standing at the same levels as in 2018.

The London-based maker of Johnnie Walker scotch whisky, Guinness stout and Smirnoff vodka said on Tuesday that it made a pretax profit of $3.08 billion for the six months ended Dec. 31, compared with $3.60 billion for the same period a year earlier.

Organic net sales declined 0.6%, missing company-provided market expectations of flat growth, and reflecting an organic volume decline of 5%.

The fall was mainly dragged by Latin America and Caribbean, which saw a 23% drop in sales, while operating profit declined 41%. The region currently accounts for 11% of the company's total revenue.

"The decline in Latin America and Caribbean was driven by a strong double-digit net sales growth comparator as well as lower consumption and consumer downtrading due to macroeconomic pressures in the region," it said.

The drop was already expected given Diageo's profit warning in November, but the challenges in the region along with high inventory levels have proven to be persistent rather than a short-term impact, AJ Bell investment director Russ Mould said in a note.

"Drinkers in Brazil have been switching from spirits to beer, which is traditionally a much lower margin product for the manufacturer. Furthermore, sales through the cash-and-carry channel have been weaker, which has put Diageo in a difficult position," Mould said.

"Distributors and retailers are sitting on too much unsold stock which has a negative knock-on effect for future orders from Diageo until that overhang works its way through the system," he added.

Write to Michael Susin at michael.susin@wsj.com

(END) Dow Jones Newswires

January 30, 2024 06:36 ET (11:36 GMT)

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