Diageo today (30 July) reported its first fall in annual sales since 2020 amid pressure on its business in Latin America and the Caribbean.
The Guinness and Johnnie Walker owner booked a 1.4% decline in sales for its 2023/24 fiscal year to $20.27bn. On an organic basis, sales dipped 0.6%.
Diageo did not provide detailed guidance for its new financial year, which weighed on investor sentiment in early trading in London today (30 June). Shares in Diageo were down 7.38% today at 11:29 BST.
The last time the Don Julio producer booked a decline in its sales was for the year ending 30 June 2020, when they dropped 8.7% on a reported basis and 8.4% organically to £11.8bn ($15.17bn).
Reflecting on the latest results in a statement, Diageo CEO Debra Crew described fiscal 2024 as “a challenging year for both our industry and Diageo with continued macroeconomic and geopolitical volatility”.
The period, she stressed, was affected by “materially weaker performance” in markets in Latin America and the Caribbean (LAC). Diageo's sales in the region declined 15% to $1.7bn and were down 21% organically.
Volume sales in the LAC region were down 16% during the year, contributing to a 5% decline at a group level.
Diageo cautioned in November that pressure on its sales in its LAC markets would weigh on its overall business. In the company's 2022/23 financial year, the region accounted for 11% of its annual net sales.
Crew said today the group had begun initiating a process “to manage the inventory issues in LAC” and had “strengthened [its] consumer insights and redeployed resources towards the best growth opportunities”, among other measures.
Pressure in the US
In North America, Diageo saw its annual net sales drop 2% on a reported basis to $7.91bn, with volumes down 4%. Crew linked the declines “to a cautious consumer environment and the impact of lapping inventory replenishment in the prior year”.
The net sales of Casamigos Tequila specifically dropped 22% on the year prior in the US, contributing to a 5% fall in the net sales of Diageo's Tequila business in the region.
US vodka sales were also down 8%, “reflecting weakness in the category”, Diageo said, with Cîroc’s sales sliding 28%, while Smiroff and Ketel One booked 3% and 5% slumps respectively.
Captain Morgan’s sales dropped 6% in the US due to “consumers shift[ing] into other spirits categories”.
In a bid to boost Casamigos sales, Crew said Diageo would be “fully integrating” the brand “into our dedicated transformed distribution network” in the next fiscal year.
Speaking on US distribution, she added in her presentation that Diageo and its two largest US distributors had invested an unknown sum “to better align our teams and capabilities against what we believe will be the best growth opportunities for the next decade – by category and brand, down to the zip code level”.
Crew stressed in her outlook for Diageo's new financial year that “a cautious consumer environment” would likely continue to impact its performance, with retailers “likely to remain cautious, too”.
When Diageo reported its half-year 2024 results in January, Crew said the London-headquartered group was facing "pockets of downtrending" with consumers seeking cheaper products.
She said today: “We expect the negative pressure on organic operating margin that we saw in the second half of fiscal '24 to persist into fiscal '25. That said, we will focus on strengthening the resilience of our business and winning with the consumer.
“We are focused on driving productivity and mitigating cost inflation while investing smartly in strategic initiatives that drive long-term sustainable growth, and we are confident that when the consumer environment improves, the actions we are taking will return us to growth.”
In a note to clients, Bernstein analyst Trevor Stirling called Diageo's results "weak but in-line" with the bank's expectations.
He added: "The guidance is very vague and won’t help improve sentiment, pointing to a continued challenging consumer environment into FY25 and ongoing pressures on margins. Management reiterates the medium-term guidance for +5%-7% organic top-line growth, with some margin expansion but doesn’t indicate when."
