Shares in spirit maker Diageo slipped by over 3% on Tuesday as it warned of continuing troubles in Latin America, adding to investor concerns over a build-up of unsold stock in the region.
The drinks manufacturer also posted a slight decline in organic net sales, just missing analyst estimates.
It pointed to a drop in its biggest market – North America – where the company has been losing market share.
Debra Crew, who took on the chief executive role in June, said, “We are not satisfied with these results and I personally am restless to get this business to perform to its full potential.”
Latin America
In November, Diageo warned that sales in Latin America and the Caribbean were set to decline by more than 20%.
On Tuesday, it confirmed they had fallen by 23% and said it expects a further decline of 10% to 20% in the second half of the financial year.
Unsold stock in Latin America has built up following a slowdown in demand for expensive spirits.
Diageo said in November they became aware of the issue at a fairly late stage.
This admission knocked investor confidence.
A spotlight was also put on Crew early in her tenure, and some shareholders worried how the brand would handle bigger threats, such as the decline in market share in North America.
"It has amplified concerns rather than put them to bed," Trevor Stirling, analyst at Bernstein, said of Diageo's first-half results.
Avoid Repeating The Problem
Latin America only accounts for around 11% of sales, but is a high margin business and therefore had a bigger impact on Diageo's organic operating profit.
That fell by 5.4%, a worse result than forecast by analysts.
Crew told journalists there were likely a few months of excess stock in Latin America, and the company expected to have cleared these by the end of its financial year.
It had put in place actions to avoid a repeat of the problem, including measures to gather better data on sales, she continued, adding a global review had left her confident Diageo had sufficient processes in place in other regions.
