In a dramatic twist worthy of a soap opera, London-based spirits giant Diageo watched its shares take an 8% nosedive in early trading. The culprit? A precipitous drop in sales across Latin America and the Caribbean, sending shivers down the spines of investors and prompting dire warnings about ongoing challenges.
Diageo, the proud purveyor of household names like Smirnoff and Baileys, has been struggling to regain investor confidence. The trouble began with a tidal wave of unsold inventory in Brazil and Mexico, eroding market share and triggering a profit warning in the United States—Diageo’s largest market. The aftershocks of this financial earthquake are still being felt.
AJ Bell, a market analyst, didn’t mince words: “Diageo’s shares have tanked once again on the latest results. Investors won’t like the figures, nor will they like the absence of a new share buyback programme and the fact the balance sheet is close to getting out of the company’s comfort zone. Diageo targets 2.5 to 3 times net debt to adjusted earnings and the leverage ratio is now sitting at the top end.”
The numbers tell a bleak story. Sales in Latin America and the Caribbean plunged by a staggering 21.1%, dragging down the company’s annual organic operating profit by 4.8%.
Diageo’s Chief Executive, Debra Crew, is putting on a brave face, outlining steps to tackle regional issues and improve performance. Yet, she candidly admits that predicting a turnaround is no easy task. The company’s medium-term goal of net sales increases between 5% and 7% per year remains a distant dream. “It’s really hard to call … what we are doing is controlling what we can,” Crew said, pointing to low consumer confidence and rampant inflation as significant headwinds.
Analysts had foreseen a 4.5% drop in annual operating profit, but Diageo’s predicament in Latin America and the Caribbean proved even worse than expected, with sales plunging between 10% and 20%.
To add salt to the wound, group net sales dipped by 0.6%, slightly below already modest expectations.
(Source: Financial Times | MarketWatch)
