Diageo soothes investors on Latin America woes
LONDON — Shares in Diageo recovered on Tuesday after initially falling 4%, as the world’s top spirits maker reassured investors it was taking steps to fix problems in Latin America and stem declines elsewhere.
The maker of Johnnie Walker whisky and Tanqueray gin just missed analysts’ sales estimates on Tuesday, largely due to a massive decline in Latin America where it is struggling with a buildup of unsold stock.
It also saw 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.
The business was resilient, and had a track record of navigating global volatility, she later added in a presentation to investors.
In November, Diageo warned that sales in Latin America and the Caribbean were set to decline by more than 20%. On Tuesday, it reported a 23% drop, and said it expected a further decline of 10% to 20% 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 hurt investor confidence and put a spotlight on Crew just 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.
Crew said on Tuesday Diageo was taking steps to prevent problems in Latin America recurring, such as improving data collection and testing new technology to better monitor sales throughout its distribution network.
Latin America only accounts for around 11% of sales but is a high margin business and therefore had a bigger impact on Diageo’s organic operating profit.
That fell 5.4%, more than forecast by analysts. Diageo said it expected a further decline in the second half but at a slower rate. —