Diageo profits hit by ‘perfect storm’ in Latin America

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Diageo boss Debra Crew has vowed to get the drinks business back on track after a “perfect storm” in Latin America and customers trading down to cheaper spirits in the US pushed down profits.

The Guinness and Johnnie Walker maker reported an 11 per cent drop in operating profits to $3.3bn in the six months to December 2023, as a slowdown in Latin America and the Caribbean that triggered a profit warning last year took hold.

“We ended the half in line with our November trading update. But let me be clear, we are not satisfied with these results,” said chief executive Debra Crew. “And I personally am restless to get this business to perform to its full potential.”

Net sales fell 1.4 per cent to $11bn, down 0.6 per cent on a like-for-like basis — a bigger drop than the flat growth forecasts by analysts. Excluding the impact of the Latin America issue, net sales grew 0.7 per cent.

Diageo’s shares fell by almost 4 per cent on Tuesday morning.

The update comes after Diageo warned in November that Latin American and Caribbean sales would plummet by 20 per cent in its first half, due to high inventory levels and lower consumer demand for spirits such as Scotch whisky, sending the company’s shares down 15 per cent.

On Tuesday Diageo said like-for-like net sales in Latin America and the Caribbean had dropped by 23.5 per cent in the six months to December.

“We experienced a perfect storm of things that could go wrong in [Latin America and the Caribbean],” said Crew, who took the helm at Diageo last summer, replacing chief executive of nine years, Ivan Menezes. She added that the company expected to return to “more appropriate stock levels” by the end of 2024.

Across the group sales volumes were down 9 per cent, with a like-for-like decline of 5.2 per cent, and it reported a 4.6 per cent increase in its price mix measure — most of which was driven by price hikes.

Weaker demand for spirits has hit Diageo and the wider drinks sector as consumers have traded down to cheaper booze during the cost of living squeeze, following a pandemic-era boom.

In the US, Diageo’s most important market, consumers eschewed higher end bottles for more affordable labels.

Sales of single malts slumped 27 per cent in the region, while Johnnie Walker sales fell 13 per cent and sales of George Clooney-founded Casamigos tequila fell 14 per cent. More affordable whiskeys such as Buchanan’s and Bulleit jumped 36 and 19 per cent respectively.

“Consumers are still facing multiple headwinds,” said Crew. “Our consumers are resilient, but they’re also still cautious and choiceful. Premiumisation continues, but there are some pockets of downtrading.”

Diageo said in the UK the most searched-for cocktail was the margarita, adding that London was “driving the tequila boom”, accounting for a third of tequila sales in bars, clubs and restaurants.

In Europe Guinness sales boomed, up 24 per cent, driven by a take-up of the Irish stout among women, who now make up about a third of Guinness drinkers. Crew said that while Guinness now had a “broad appeal”, “rugby lads still like it”.