Spirits giant Diageo’s shares suffer a Latin American hangover. The creator of Johnnie Walker whisky, Diageo (DGE.L), reported on Friday that it expects first-half operating profit growth to decline due to “materially weaker performance” in Latin America and the Caribbean. This news caused shares of the company to plunge as much as 16%.
The Tanqueray gin and Don Julio tequila manufacturer said that sales in the area, which account for around 11% of Diageo’s overall sales, are now predicted to drop by more than 20% in the six months leading up to the end of December.
The largest spirits manufacturer in the world stated, “Macroeconomic pressures in the region are resulting in lower consumption and consumer downtrading.” “These impacts are slowing down progress in reducing channel inventory to appropriate levels for the current environment,” it stated in a statement.
As of 11:37 GMT, Diageo’s shares had dropped by 16%, the worst in a single day since 1987. It was the worst-performing stock on London’s blue-chip (.FTSE) index, trading at 2,762 pence.
“Diageo has long been a favorite steady-Eddie thanks to its seemingly impenetrable brand power and dividend-paying ability, and there will now be concerns that the change in appetites could translate to other, larger markets.” Sophie Lund-Yates, an analyst at Hargreaves Lansdown
Last month, the world’s largest tequila manufacturer, Becle (CUERVO.MX), reported that slower consumer spending on alcoholic beverages in Europe and Latin America negatively impacted its profitability.
Despite geopolitical difficulties in the Middle East, Diageo reported solid growth in Europe, but at a slower rate than in the second half of its previous financial year, which concluded on June 30.
“Over time, as inflation moderates and productivity from our supply agility program flows through, we expect operating profit to grow ahead of organic net sales growth,” said Diageo.
Diageo’s sales of its more costly liquor brands offset reduced volumes, allowing it to narrowly meet profit projections for the year that ended on June 30.
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