Yahoo Finance Diageo shares crash 15 per cent after it lowers forecasts amid Caribbean storms
Diageo shares plummeted over 15 per cent on Friday morning after it said it expects a slowdown in net sales growth in the first half of 2024, thanks to a performance downturn in Latin America and the Caribbean (LAC).
In a trading update today, the global beverage company said it expects a 20 per cent drop in net sales year on year in the LAC region as choppy headwinds and consumer downtrading batter its progress.
LAC makes up nearly 11 per cent of Diageo’s net sales value.
However, despite the drop in the LAC region, the company still expects continued momentum in North America, Africa, Europe, and Asia Pacific.
In September, Diageo told investors its outlook for fiscal 2024 remained the same since August and it expected to see gradual sales growth from the second half of fiscal 23.
But now the Crown Royal whisky seller anticipates a decline in operating profit growth for the first half of fiscal 24, compared to the second half of fiscal 23.
Looking ahead to the second half of fiscal 24, the company expects a slow improvement in net sales and operating profit growth at the group level.
But Victoria Scholar, head of investment at interactive investor said shoppers turning to cheaper brands has hurt Diageo.
“Trading down among consumers is a key risk to Diageo’s strategy which has been to focus on quality over quantity. The economic downturn is likely to mean fewer consumers are willing or able to pay more for expensive high margin premium spirits,” she explained.
And Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, is concerned that this downtrading could spread elsewhere.
She said: “Diageo has long been a favoured steady-Eddie thanks to its seemingly impenetrable brand power and dividend paying ability, and there will now be concerns that the change in appetites could translate to other, larger markets.”
The group’s last major profit warning came in February 2020 when coronavirus hit earnings in China, an important region for Diageo.
Post pandemic recovery in China has been slower than analysts expected.
The global cost of living crisis is shifting drinking habits and is set to cause luxury companies grief, according to AJ Bell investment director Russ Mould.
He said: “Some people are trading down to cheaper products or are drinking less often, which means perceived ‘luxury’ companies like Diageo are finding life harder.
“The idea that luxury goods companies are immune to an economic downturn isn’t stacking up. LVMH, Estee Lauder, Ralph Lauren and Watches of Switzerland have all talked about a slowdown in growth at various points this year, so perhaps Diageo falling into the same pit shouldn’t have been a surprise.”
