Shares in Diageo dropped on Tuesday after the Guinness seller said a slump in sales of expensive spirits in its Latin America and Caribbean segment offset a surge in sales of beer in Europe and Africa driven by soaring demand for Guiness.
The London headquartered company saw its net sales drop 1.4% in the latter half of 2023, to $ 11 billion, as a sharp drop in sales in its Latin America and Caribbean markets, and a slowdown in North America, counteracted an uptick in sales in all regions elsewhere.
Diageo DGE, -3.61% DEO, -0.01% said its Latin America and Caribbean segment – which accounts for 10% of company-wide revenue – saw its sales drop 23.5% in the last six months of 2023, following a slowdown in the region’s economy that saw customers switch from spirits to beer.
Shares in Diageo fell 3% on Tuesday having lost 19% of their value over the previous 12 months.
The FTSE-100 company, which owns brands including Johnnie Walker and Tanqueray, said soaring inflation and higher interest rates had driven a shift in consumer spending that led to widespread “downtrading” in the region’s major markets including Brazil, following a boom during COVID-19.
High interest rates and falling commodity prices led to a major slowdown in Latin America’s economic growth last year, from rates of 4.1% in 2022 to 2.3% in 2023, according to figures from the International Monetary Fund.
This shift in spending led to a buildup of stock among Diageo’s wholesale customers, as the high street shops that buy stock from the London firm’s wholesale customers also found themselves overstocked and unable to sell spirts on to customers.
The slowdown saw Diageo’s operating profits drop 11% to $ 3.31 billion. In a presentation to investors, Diageo CEO Debra Crew said: “Let me be clear — we are not satisfied with these results.”
Diageo said it is also seeking to collect more information from the high street drinks sellers who purchase goods from its own direct wholesale customers, which the London company said it currently has “limited visibility” over.
Outside of Latin America and the Caribbean, Diageo’s organic net sales grew by 2.5% in the final six months of 2023, as higher sales in its Europe (+3.4%), Asia-Pacific (+5.9%) and Africa (9.3%) businesses offset a 1.5% drop in sales in its largest North American segment.
In Europe, which accounts for 26% of Diageo’s revenues, surging sales of Guinness in Britain and Ireland drove a 24% uptick in sales of the stout across the continent.
The surge saw global Guinness sales increase by 14% in the last half of 2023, in what marked the sixth consecutive half-year period of double digit sales growth for the 265-year-old beverage.
In Asia, which generates 24% of Diageo’s revenues, higher sales of the firm’s “super premium” spirits, including its expensive Scotch whiskies and high end Chinese liquors, drove an 18% uptick in sales in its Greater China business and a 9% increase in sales in India.
Diageo’s African business, which is currently the company’s smallest market in accounting for just 10% of firm-wide revenues, reported a 9% increase in sales, driven by higher sales of its Ugandan Senator lager and non-alcoholic Malta Guinness.
The company said it now expects to see continued growth in Africa in the first six months of 2024, despite the challenging macroeconomic conditions.