Diageo, the world's top spirits maker, just missed first-half sales estimates on Tuesday as a sharp decline in Latin America weighed on its overall performance, sending its shares down more than 3%.
The maker of Johnnie Walker whisky and Tanquery gin reported a 0.6% fall in organic net sales, slightly missing analyst estimates for flat organic sales, according to a company compiled consensus.
Premium Spirits
Diageo warned in November that sales in Latin America and the Caribbean were set to decline by more than 20% amid a build-up of unsold stock in Mexico and Brazil, where drinkers were buying less premium spirits.
The move knocked investor confidence and some shareholders were unhappy with how the company, led by new chief executive officer Debra Crew, had handled the run-up to the warning.
Consumer Environment
"We have taken action and have further plans to reduce inventory to more appropriate levels for the current consumer environment in the region by the end of fiscal 24," Crew said in a statement, adding this was a key priority.
Sales in the region fell 23%. Excluding the impact of the division, organic net sales grew 2.5% driven by Asia Pacific, Europe and Africa, with a decline of 1.5% in North America.
Outlook
Organic operating profit fell 5.4%, a worse result than forecast by analysts, who expected a decline of 4.7% on average.
Diageo said it still expects organic net sales growth to improve in the second half of its financial year.
Bloated Inventories
In December, Diageo executives said that they had limited insight into sales at Mexican retailers and wholesalers, meaning the problem only became obvious when it was too late to reverse.
The holiday season is critical for Diageo re-establishing sales momentum in Latin America, but demand for premium brands like Johnnie Walker and Tanqueray gin continues to lag cheaper alternatives, according to Mexican wholesalers.
That makes it harder for wholesalers to clear bloated inventories.
Article by Reuters, additional reporting by Hospitality Ireland.
