Latin America to drag Diageo profit down

Johnnie Walker owner Diageo expects to see a drop in profit in the first half of fiscal 2024 due to a double-digit decline in Latin America and Caribbean.

A previous trading update from Diageo on 28 September said it expected see a gradual improvement in organic net sales growth from the second half of fiscal 2023.

In a trading update issued today (10 November), the UK-headquartered firm now predicts a slower than expected growth for the first half of fiscal 2024, compared to the second half of fiscal 2023.

The updated guidance was due to a ‘weaker performance outlook’ in Latin America and Caribbean (LAC), which represents nearly 11% of Diageo’s net sales value (fiscal 2023). The region is now expected to decline in organic net sales by more than 20% for the first half of fiscal 2024.

The company said LAC had experienced ‘very strong’ 20% organic net sales growth compared to the first six months of fiscal 2023. But the region was impacted by macroeconomic pressures as drinkers traded down and consumed less alcohol, resulting in a slowdown in reducing channel inventory.

However, the group said momentum had continued in its four other regions. In North America, Diageo predicts a gradual improvement for the first half of fiscal 2024.

In Europe, Diageo said growth continues to be strong despite geopolitical tensions escalating in the Middle East. The company reported good growth in Asia Pacific, despite a ‘slower than expected recovery’ in China.

Diageo now predicts a year-on-year decline in organic operating profit for the first half of fiscal 2024, mainly due to LAC’s decreasing net sales, increased trade investment, lower operating leverage and consumer downtrading.

A gradual improvement in the group’s organic sales and profit is expected for the second half of fiscal 2024.

In the medium term, Diageo expects to deliver a net sales increase of between 5% and 7%, and a similar level of growth for its operating profit.

The company said in a statement: “Over time, as inflation moderates and productivity from our supply agility programme flow through, we expect operating profit to grow ahead of organic net sales growth.

“We will continue to leverage our scale to drive accelerated productivity savings and benefit from operating leverage, premiumisation and revenue growth management.”

The firm is confident about this guidance due to its presence in the ‘attractive’ international spirits segment, which Diageo said is growing ahead of total beverage alcohol.

The group’s “advantaged portfolio and footprint” will enable it to “grow ahead of spirits”, Diageo added.

Diageo’s extensive spirits portfolio includes Smirnoff vodka, Captain Morgan rum, Gordon’s gin, Tanqueray gin and Lagavulin whisky, among many other brands.

In the year ending 30 June 2023, Diageo reported double-digit net sales growth, with a 9% increase in LAC.