Diageo shares plunge as drinks seller warns of 20% drop in sales in Latin America and the Caribbean

By Louis Goss

Shares in Diageo tumbled on Friday after the Guinness seller cut its outlook for the year after warning of plummeting sales in its Latin American and Caribbean divisions that account for 11% of firmwide revenues.

The FTSE 100 drinks giant (UK:DGE) (DEO), which owns top brands including Johnnie Walker whisky and Tanqueray gin, said it expects sales in its Latin American and Caribbean markets to fall 20% year-over-year due to macroeconomic pressures in the region.

The London headquartered company warned that lower sales in those regions will mean net sales grow at a slower rate than previously forecast in the first half of 2024, with growth falling behind levels previously seen in the first half of 2023.

Diageo shares fell 13% on Friday, having lost 25% of their value over the previous 12 months. U.S.-listed shares of Diageo were down by a similar amount. Shares in rival spirits sellers also fell, with Rémy Cointreau stock (FR:RCO) down 3% and LVMH Moët Hennessy Louis Vuitton (FR:MC) also fell 3%.

Diageo's Latin American and Caribbean divisions generate most of their revenues selling spirits, such as Buchanan's whiskey and Don Julio tequila, while making the bulk of their sales in the region's top two economies, Brazil and Mexico, according to the firm's 2023 results.

High interest rates and falling commodity prices have seen Latin America's economic growth slow this year, from rates of 4.1% in 2022 to 2.3% in 2023, according to figures from the International Monetary Fund.

"Very tough economic conditions in Latin America means consumers are cutting back and trading down to less premium options. The region only makes up a relatively small portion of Diageo's whole, but the extent of declines means expectations have materially changed at the group level," said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

Diageo, which was formed through the merger between drinks sellers Guinness and Grand Metropolitan in 1997, said it expects momentum to continue in all regions outside of Latin America, with growth in sales set to improve in North America and Africa compared with last year.

The company, however, warned that it now expects sales in Europe and the Asia Pacific to grow at a slower pace in the first half of 2024 than in the first half of 2023, due to mounting tensions in the Middle East and a slower than expected recovery in China.

"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," said Victoria Scholar, head of investment, at interactive investor, in a note.

-Louis Goss

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11-10-23 0537ET

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