Shares in whisky giant Diageo have plummeted around 15%, wiping more than £10 billion off its market value, after a slump in sales to Latin America.
The company warned in a trading update today half-year operating profits will likely fall short of previous expectations.
Its shares recovered some lost ground in later trading but were still more than 12% lower day-on-day, at £28.50, at market close.
Diageo’s whisky brands include Johnnie Walker, Bell’s, Buchanan’s and J&B. The London-based company is also behind single malts Lagavulin, Laphroaig and Talisker.
Other brands in its global portfolio include Guinness, Smirnoff vodka, Captain Morgan rum, Bailey’s Irish cream liqueur and Tanqueray gin.
Key market ‘materially weaker’
The Latin America and Caribbean (LAC) region has been a strong market for the company in recent years, driven in part by fast-paced growth in demand for Buchanan’s whisky.
But in its latest trading update Diageo said it was now seeing a “materially weaker” performance outlook in LAC, which accounts for nearly 11% of the firm’s net sales.
First half net sales in the LAC region are now expected to decline by more than 20% year-on-year.
London headquartered Diageo said sales growth momentum was continuing in the other four of its five regional markets.
But it now expects slower growth overall in the first half of its 2023-24 trading year.
North America will likely deliver a “gradual improvement” in net sales, the firm said.
Africa is also delivering better figures and there is “continued momentum”, albeit slower paced than in the second half of 2022-23 in Europe and Asia Pacific, it added.
In Europe, growth “continues to be strong” despite geopolitical tensions escalating in the Middle East, but this is offet by a slower-than-expected recovery in post-Covid sales to China.
Diageo said its sales to LAC countries were negatively impacted hit by macroeconomic pressures across the region, driving lower consumption and consumer downtrading.
Looking ahead to the second half of 2023-24, Diageo said: “We expect to see a gradual improvement in organic net sales and organic operating profit growth from the first half.
Diageo’s bosses ‘believe in the fundamental strength of our business’
“We continue to invest in marketing and in the business to drive long-term sustainable growth. We continue to believe in the fundamental strength of our business and expect to deliver organic net sales growth between 5 and 7% over the medium term.”
Meanwhile, Diageo chief executive Debra Crew told investers the company was suffering an impact from tensions in the Middle East and the conflict in Gaza.
She added: “It has impacted results for the region since we have stopped trading in some parts.
“It is certainly not the largest part of Europe and Asia Pacific, but we have seen an impact since the tensions and it is weighing on consumer sentiment a little bit more broadly, but this has just been the last few weeks.”
Russ Mould, investment director at financial services firm AJ Bell, said: “It’s a rarity to see Diageo issue bad news, yet no business is immune to setbacks. Some people are trading down to cheaper products or are drinking less often, which means perceived ‘luxury’ companies like Diageo are finding life harder.”