Johnnie Walker maker Diageo misses first-half sales estimates

SHARES in Diageo, the world’s top spirits maker, slipped over 3 per cent on Tuesday (Jan 30) as it warned of further troubles in Latin America, adding to investor concerns a build up of unsold stock in the region would be hard to clear.

The maker of Johnnie Walker whisky and Tanquery gin also posted a slight decline in organic net sales, just missing analyst estimates, and pointed to a drop in North America – its biggest market, where the company has been losing market share.

“We are not satisfied with these results and I personally am restless to get this business to perform to its full potential,” chief executive officer Debra Crew, who took the helm in June, told journalists.

In November, Diageo warned that sales in Latin America and the Caribbean were set to decline by more than 20 per cent. On Tuesday it reported they had fallen by 23 per cent, and said it expects a further decline of 10 to 20 per cent in the second half.

Unsold stock has built up in Latin America following a slowdown in demand for expensive spirits. Diageo said in November it became aware of the problem at a relatively late stage.

The admission knocked investor confidence and put a spotlight on Crew a few months into her tenure, with some shareholders worried about how the business would handle bigger threats, including a decline in market share in North America.

“It has amplified concerns rather than put them to bed,” Trevor Stirling, analyst at Bernstein, said of Diageo’s first-half results.

While not significantly worse than expected, he said, they had added to worries, including that difficulties in Latin America appeared more widespread than previously thought and leading brands in North America were flagging.

Latin America only accounts for around 11 per cent of sales, but is a high margin business and therefore had a bigger impact on Diageo’s organic operating profit.

SEE ALSO

Cognac at US$4,000 bumps up against luxury shoppers’ new limits

That fell 5.4 per cent, a worse result than forecast by analysts. Diageo said it expected a further decline in the second half but at a slower rate.

Crew told journalists there were likely a few months of excess stock in Latin America, and the company expected to have cleared these by the end of its financial year.

It had put in place actions to avoid a repeat of the problem, including measures to gather better data on sales, she continued, adding a global review had left her confident Diageo had sufficient processes in place in other regions. REUTERS