30th Jan 2024 13:31
(Alliance News) - Investors did not raise a glass after Diageo PLC's first-half earnings, with the brewer and distiller's outturn in Latin America keeping a lid on earnings, though the Guinness maker is confident about its second half.
Diageo shares were 1.3% lower at 2,805.50 pence each in London on Tuesday afternoon.
The London-based brewer and distiller sells more than 200 drinks brands, including Captain Morgan rum, Johnnie Walker whisky, Tanqueray gin, Smirnoff vodka and Baileys liqueur.
Sales in the six months ended December 31 fell 2.8% to USD15.18 billion from USD15.61 billion a year earlier.
This was driven by a decline in organic net sales in Latin America & Caribbean, where they contracted by USD310 million or 23% on a year before. Diageo said this was the result of strong year-earlier comparison, as well as "lower consumption and consumer downtrading due to macroeconomic pressures in the region".
Pretax profit dropped 15% to USD3.08 billion from USD3.61 billion the year before.
"Last year, Diageo warned about the impact challenges in Latin America would have on its results – so that comes as no surprise," RBC Brewin Dolphin analyst John Moore commented.
"Today's statement provides greater clarity following the shock from Latin America last year, which will hopefully turn out to be a blip rather than an enduring problem."
Diageo raised its interim dividend by 5.0% to 40.50 US cents from 38.57 cents.
Looking ahead, Diageo said it expects organic net sales growth rate in the second half to "gradually improve" compared to the growth rate in the first half.
"In Europe, Asia Pacific and Africa, we expect continued growth in the second half, recognizing that macroeconomic volatility and consumer uncertainty will likely persist," it said.
Chief Executive Debra Crew believes the company is "well-positioned" in the long-term, as it grapples with tough market conditions now.
Edison analyst Russell Pointon commented: "Despite the sobering figures, management is hopeful that the worst is behind it with as CEO Debra Crew expresses optimism for the second half, anticipating improvements in organic net sales and operating profit growth, although the LAC region is still expected to be strongly negative. Excluding the [Latin America & the Caribbean] impact, Diageo achieved modest growth in both reported and organic net sales.
"Investors should closely monitor the company's ability to navigate the persisting global economic volatility and execute its strategic plans effectively. The dividend increase and share buybacks demonstrate management's commitment, but challenges persist in an industry that demands resilience and adaptability."
By Eric Cunha, Alliance News news editor
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