Spirits giant Diageo’s shares suffer Latin American hangover

Diageo’s (DGE.L) shares fell by as much as 16 per cent at the end of last week after the maker of Johnnie Walker whisky said it expected first-half operating profit growth to drop due to “materially weaker performance” in Latin America and the Caribbean.

Sales in the region, which generates nearly 11 per cent of Diageo’s total sales, are now expected to decline by more than 20 per cent in the six months to the end of December, the maker of Tanqueray gin and Don Julio tequila added.

“Macroeconomic pressures in the region are resulting in lower consumption and consumer downtrading,” the world’s biggest spirits maker said. “These impacts are slowing down progress in reducing channel inventory to appropriate levels for the current environment,” it added in a statement.

Shares in Diageo fell by as much as 16 per cent, their biggest one-day drop since 1987, and were trading at 2,762 pence at 1137 GMT, the worst performer on London’s blue-chip (.FTSE) index.

“Diageo has long been a favoured steady-Eddie thanks to its seemingly impenetrable brand power and dividend paying ability, and there will now be concerns that the change in appetites could translate to other, larger markets,” said Sophie Lund-Yates, analyst at Hargreaves Lansdown.

Last month, Mexico’s Becle (CUERVO.MX), the world’s largest tequila producer, said economic challenges in Europe and Latin America were slowing customer spending on liquor, which battered its profits.

Meanwhile in Europe, Diageo said growth continues to be strong despite geopolitical tensions in the Middle East, although the pace is slower than the second half of its previous financial year, which ended on June 30.

“Over time, as inflation moderates and productivity from our supply agility program flow through, we expect operating profit to grow ahead of organic net sales growth,” Diageo said.

Diageo narrowly beat earnings estimates for the year ended June 30, as sales of its more expensive liquor brands offset lower volumes.