Diageo’s boss is under pressure as sales and profits fall… but British drinkers are showing no signs of cutting back
Pressure is mounting on Diageo’s CEO after the drinks giant reported a decline in sales and profits.
Drinkers have retreated to cheap spirits in the US, and the ‘perfect storm’ in Latin America and the Caribbean has led to the Guinness maker releasing a weak set of half-year results.
A strong performance in the UK was not enough to offset falling sales elsewhere and ease the pressure on Debra Crowe, who took over in June. As such, the FTSE 100 group saw sales fall 1.4 per cent to £8.6bn in the six months to the end of December. Profits fell by 11 per cent to £2.6 billion.
Shares have remained down about 15 percent since Crowe, 53, succeeded Sir Ivan Menezes.
She acknowledged that the past six months had been “challenges for Diageo and our sector” but said she expected improvement in the second half.
Sales decline: The decline of drinkers to cheap alcohol in the US, and the ‘perfect storm’ in Latin America and the Caribbean, has put pressure on Diageo boss Debra Crowe (pictured)
“Let me be clear, we are not satisfied with these results,” she said. “And I’m concerned about making this work perform to its full potential.
Consumers still face multiple headwinds. Our customers are flexible, but they are also still careful and choosy. The premium upgrade process continues, but there are still some pockets of downgrades.’
Sales in North America, its biggest market, fell 2 per cent in the six months to the end of December with single malts down 27 per cent.
Johnnie Walker shares fell 13 percent, and Casamigos, which was founded by George Clooney, fell 14 percent. Prices of more affordable spirits such as Buchanan and Bullet jumped 36 percent and 19 percent, respectively.
Crowe also bemoaned the “perfect storm” of problems in Latin America and the Caribbean where sales fell by 18 percent amid weak demand for spirits such as Scotch whisky as well as a build-up of unsold inventory.
Poor performance in the region triggered a profit warning in November, leading to the biggest decline on record for Diageo shares.
However, yesterday’s update showed that the UK remains a bright spot, with sales up 9 per cent over the half-year.
This was largely thanks to the strong performance of Guinness, which saw a 24 per cent increase in sales in Britain.
Gains in the UK helped lift sales across Europe by 10 percent.
Nuno Telles, head of Diageo in the UK, played down concerns about a decline in the turnover of alcohol drinkers in the UK. “The cost of living crisis is something we are aware of, and consumers will be looking at how to address it,” he said.
“But the reality is that Guinness – which is a premium product – is growing well ahead of the beer sector.”
He said the abundance of events, such as the Six Nations rugby tournament, underlined Britons’ eagerness to drink to excess.
Diageo said up to 300,000 pints of Guinness are sold at Twickenham on England match days.
But Arin Shikri, equity analyst at investment platform Hargreaves Lansdowne, said earnings expectations for the rest of this year “remain ambiguous”.
“The medium term looks a bit brighter, but improvements in the Latin American and Caribbean market will be fundamental and largely beyond Diageo’s control,” he added.
Richard Hunter, head of markets at Interactive Investor, added: “All is certainly not lost at Diageo, but the performance in Latin America and the Caribbean has left a bitter taste in the mouth, which may take some time to recover from.”
Crowe began her career as a military intelligence officer in the US Army, before working for consumer giants such as Pepsico, Kraft Foods, Nestle and Mars.
(tags for translation) Daily Mail