Shares in Diageo tumbled on Friday after the Guinness retailer cut its outlook for the year after warning of plummeting sales in its Latin American and Caribbean divisions, which account for 11% of company sales.
The FTSE 100 drinks giant DGE,
DEO,
which owns top brands including Johnnie Walker whiskey and Tanqueray gin, expects sales in the Latin American and Caribbean markets to decline 20% year-on-year due to macroeconomic pressures in the region.
The London-based company warned that lower sales in those regions will cause net sales to grow more slowly in the first half of 2024 than previously forecast, with growth lagging behind levels previously seen in the first half of 2023 was observed.
Diageo shares fell 13% on Friday, having lost 25% of their value in the past 12 months. US-listed shares of Diageo fell by a similar amount. Shares of rival spirits sellers also fell, with Rémy Cointreau shares RCO,
a decline of 3% and LVMH Moët Hennessy Louis Vuitton MC,
also fell by 3%.
Diageo’s Latin American and Caribbean divisions generate the majority of their revenue from the sale of spirits such as Buchanan’s whiskey and Don Julio tequila, while generating the majority of their sales in the region’s two largest economies, Brazil and Mexico, according to the company’s 2023 results.
High interest rates and falling commodity prices have slowed Latin America’s economic growth this year, from 4.1% in 2022 to 2.3% in 2023, International Monetary Fund figures show.
“The very difficult economic conditions in Latin America mean that consumers are cutting back and switching to less premium options. The region is only a relatively small part of Diageo’s whole, but the scale of the decline means expectations have changed materially at group level,” said Sophie Lund-Yates, chief equity analyst at Hargreaves Lansdown.
Diageo, which was formed from the merger between drinks retailers Guinness and Grand Metropolitan in 1997, said it expects the momentum to continue in all regions outside Latin America, with sales growth in North America and Africa improving compared to last year.
However, the company warned that it now expects sales in Europe and the Asia-Pacific region to grow more slowly in the first half of 2024 than in the first half of 2023, due to rising tensions in the Middle East and a slower than expected growth. recovery in China.
“Consumer trading is a key risk to Diageo’s strategy, which is to focus on quality over quantity. The economic downturn will likely mean fewer consumers are willing or able to pay more for expensive, high-margin premium spirits,” Victoria Scholar, head of investments at Interactive Investor, said in a note.