Diageo’s woes across the Atlantic continued this week, as second-half results were hit by a plunge in sales in Latin America and a continued slowdown in North America.
In results for the six months to 31 December, the drinks giant reported net sales of $11bn, down 1.4% or $158m year on year. That was due to a $167m unfavourable foreign exchange impact and an organic net sales decline of $67m.
The organic sales decline was largely fuelled by a $310m or 23% slump in sales in Latin America and Caribbean (LAC), which Diageo blamed on strong comparator numbers from last year and lower consumption trends in the region.
Excluding the impact of LAC, Diageo was in marginal growth. Net sales were up 0.7% and organic net sales rose 2.5% as it saw growth in Asia Pacific, Africa and Europe.
However, its key US market continued to post decline. Sales were down 1.5% in the region despite a sequential improvement in the latter six months of 2023.
As a result of the headline revenue drop and slump in LAC sales, reported operating profit declined 11.1% to $3.3bn and reported operating profit margin contracted 329bps.
Organic operating profit declined by $205m (or 5.4%), of which $234m was attributable directly to the group’s struggles.
CEO Debra Crew, who took over during the year, said the results reflected a “challenging” period for the group as it “faced an uneven global consumer environment”.
Citing pressures from “continued inflation” and “low operating leverage as we reduce inventory in LAC”, the group forecast a decline in annual operating profit for the full year, albeit at a better rate than in the first half of the year.
Jefferies noted this “conservative 2025 outlook implies a U-shaped rather than a V-shaped recovery”, while Hargreaves Lansdown said the numbers represented an “expectedly underwhelming set of first half results”.
AJ Bell did welcome the absence of any “further shocks” after November’s profit warning, but highlighted concerns that its “prized Casamigos tequila brand is losing market share”. It added: “We’ve already seen in other parts of the luxury market that the wealthy are not immune from a higher cost of living and higher interest rates. Therefore, Diageo needs to be more creative with how it convinces consumers to buy its products.”
Diageo shares dropped 3.4% on opening on Tuesday, but regained ground through the day to close above par, partly thanks to an increased interim dividend.
However, the stock remains nearly 20% down year on year after a sharp drop in November on downgraded sales and profit expectations.