Latin American crisis weighs on Deo's earnings, misses market expectations
British spirits giant Diageo (DEO.US) reported its annual performance on Tuesday, showing net sales of $20.77bn in the fiscal year 2024, down 1.4% year-on-year, but slightly above analysts' forecast of $20.24bn. In the year to June 30, Diageo's operating profit rose 8% to $6bn. However, net profit fell from $4.45bn in the previous year to $3.77bn, slightly below market expectations, due to a sharp fall in sales in Latin America and the Caribbean.
Looking ahead, Diageo is cautious about the market environment in fiscal 2025, expecting a challenging environment for consumption. The company said: “We believe that when the consumption environment improves, organic net sales growth will recover.” Diageo reiterated its target of returning to its medium-term guidance range of 5% to 7% organic net sales growth and expects to face some pressure on its organic Ebit margin in fiscal 2025.
As the world’s largest spirits company, Diageo has been trying to restore investor confidence, particularly after a build-up of unsold inventory in Mexico and Brazil and a loss of market share in the US. The maker of Johnnie Walker and reyka said that the decline in annual organic operating profit was mainly due to a 21.1% fall in sales in Latin America and the Caribbean, which had been an important profit driver for the company.
Debra Crew, Diageo’s chief executive, said the company had taken action to address the challenges in Latin America and the Caribbean and to improve performance in other regions. “We believe that as the consumption environment improves, the actions we have taken will put us back on the growth trajectory,” she said in a statement.
Although analysts had forecast a 4.5% decline in Diageo’s annual operating profit, the actual fall in sales in Latin America and the Caribbean was greater than expected, after Diageo had forecast a 10% to 20% fall in the region.
Overall, Diageo’s net sales were also slightly below expectations, with a 0.6% fall in organic growth. Organic growth refers to the natural growth of a company’s business, not including growth from acquisitions or other external factors.
As of publication, Diageo was trading down more than 10% at $118.32.