Caribbean sales slump rocks Diageo: Shares in biggest fall since 1987
- Drinks giant said sales in the region will fall by 20% in the six months to the end of December
- A serious setback for the new boss Debra Crew
- Diageo expects profits over the period to rise less than previously expected
Diageo shares suffered its biggest fall in almost four decades after it warned that falling sales of Scotch whiskey in Latin America and the Caribbean would hit profits.
In a major setback for new boss Debra Crew, the drinks giant, behind brands such as Johnnie Walker and Guinness, said sales in the region will fall by more than 20 percent in the six months to the end of December.
As a result, the company expects earnings over the period to increase less than previously expected.
Battle: The drinks giant, behind brands such as Johnnie Walker and Guinness, said sales in the region will fall by more than 20 percent
The unscheduled update sent Diageo down as much as 16 percent – its biggest single-day fall since 1987 – before the stock fell 12.2 percent, or 395 cents, to close at 2,850 cents.
The defeat wiped almost £9 billion off the group’s value, leaving it with £64 billion.
Sophie Lund-Yates, analyst at broker Hargreaves Lansdown, said: ‘Diageo has long been a favorite steady Eddie thanks to its seemingly impenetrable brand power and ability to pay dividends, and there will now be concerns that the change in appetite could translate into other, larger markets.”
Diageo, whose brands also include Smirnoff, Don Julio, Captain Morgan, Tanqueray and Baileys, sells drinks around the world, with Latin America and the Caribbean accounting for 11 percent of sales.
Brazil and Mexico are the largest markets in the region, followed by Central America and the Caribbean.
Trade there was boosted last year by growing demand for whisky, including Johnnie Walker Black Label and Johnnie Walker Red Label, as well as Don Julio tequila and Smirnoff vodka.
Diageo also owns Grand Old Parr, Colombia’s number one whiskey brand, Cacique, Venezuela’s leading rum, and Ypioca, a traditional Brazilian drink called cachaca.
But businesses have been hit by economic problems in the region, with drinkers switching to cheaper brands. “Macroeconomic pressures have worsened and that has led to lower consumption and actually more consumer downtrading than what the team expected,” said Crew, a former US Army captain who succeeded Sir Ivan Menezes as CEO of Diageo when he passed away in June.
While the other four trading regions – North America, Europe, Asia Pacific and Africa – continue to trade well, Crew said there has been a slowdown in the Middle East due to the war between Israel and Hamas.
Crew said: We have seen an impact since the tensions and it is weighing on consumer confidence slightly more broadly, but this is only in the last few weeks.’
Russ Mould, investment director at AJ Bell, said: ‘It’s rare for Diageo to deliver bad news, but no company is immune to setbacks and the drinks giant has confirmed that things are not going well.’
He added: “The idea that luxury goods companies are immune to an economic downturn is wrong.