Diageo is set to post its first yearly sales decline since 2020 next week, when it will need to convince investors that plans to turn around its North and Latin American businesses are making progress.
The drinks company came under pressure in November as it said it expected organic operating profit growth to decline due to a ‘materially weaker’ performance in Latin America and the Caribbean.
The announcement shook investor confidence in Diageo’s management and caused the label to lose market share in the US.
As a result, analysts on average expect the company to post a 0.2% decline in net sales for the year to 30 June when it reports results on Tuesday.
Sales Forecast
The company – which makes Tanqueray gin and Johnnie Walker whiskey – made net sales of £17.1 billion the previous year.
Diageo already made almost £11 billion worth of sales in the first half, meaning it would need another approximately £6 billion to achieve a flat result.
Last year, its second-half sales stood at £7.7 billion.
Fintan Ryan at Goodbody stockbrokers and other analysts have warned that the outcome could be worse than consensus forecasts.
Persistent problems in the US and the company’s troubles in Latin America “could see this full-year delivery lower,” Ryan said in a note.
There are some investors who are also pessimistic.
Fred Mahon, fund manager at Diageo investor Church House, said “We are keeping our hopes quite low.”
Like Ryan, Mahon quoted weak luxury goods sales.
Diageo declined to comment.
Spirits Market
Recent results from peers such as Remy Cointreau illustrate the challenges facing spirits makers.
Demand has fallen following a post-pandemic boost in sales, and stock ordered during this busy period is now gathering dust and driving sales declines across the sector.
Investors want to see Diageo turn around market share losses in North America, the company’s largest market which contributes 40% of sales.
In the US, traditionally strong spirits like whiskey and gin are not currently as popular as they were in the past, while the tequila market has been growing.
However, pricier labels such as Diageo’s Casamigos tequila has recently lost share to cheaper brands.
Nielsen data – provided to Reuters by an industry source – shows that Diageo has lost US market share in four of the six months to June.
Diageo has also warned that sales are likely to fall by another 10-20% in Latin America and the Caribbean, with Brazil and Mexico driving declines so far.
Mexico
A build-up of unsold stock among wholesalers and retailers in Mexico caught Diageo by surprise in the first half.
Inventories at Mexican wholesalers have “not improved at all,” on specialist spirits distributor told Reuters, asking not to be named.
Diageo brands were aggressive on promotions, the distributor said, with lots of three-for-two deals or discounts of up to 50% in an attempt to shift stock.
Overall, wine and liquor sales from wholesalers were down 6.2% in Mexico in the 12 months to May, with champagne and whiskey leading declines, according to Mexican market intelligence firm ISCAM.
Although Johnnie Walker is one of Diageo’s key products in Latin America, a co-founder of prominent Mexican bar Licoreria Limantour – Benjamin Padron Novoa – said the cost of international spirits is too high for many Mexicans today.
Novoa said those that could still afford to splash out on expensive liquor preferred to spend their money on local drinks like mezcal.
He added that despite this being even pricier than whiskey it at least had Mexican roots.
Novoa said that customer would rather pay for something with Mexican heritage and made by small, family-owned distillers than give “1,000 pesos to an international company.”
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