Source: Sharecast
Diageo had said back in September that it expected first-half organic net sales growth to pick up from the second half of last year ended 30 June.
But Latin America and the Caribbean (LAC), one of its five key regions which accounts for 11% of group net sales values, is now expected to see an organic net sales decline of more than 20% in the second half compared with last year.
The Johnnie Walker, Bailey's and Guinness owner said: "LAC is lapping very strong 20% organic net sales growth, versus the first half of fiscal 23. Macroeconomic pressures in the region are resulting in lower consumption and consumer downtrading. These impacts are slowing down progress in reducing channel inventory to appropriate levels for the current environment."
For the first half ending 31 December 2023, organic operating profit growth for the group as a whole is now expected to decline on the first half mainly due to LAC's declining sales, higher trade investment, lower operating leverage and adverse mix resulting from downtrading, Diageo said.
"Across other regions, we expect to continue to invest additional advertising and promotion ahead of net sales. We expect that there will be continued, albeit moderating, cost inflation, which will be partially offset by pricing actions."
Looking ahead to the second half of the year, group organic net sales and operating profit growth are expected to see a "gradual improvement" from the first half.
Commenting on the trading update, Victoria Scholar, head of investment at Interactive Investors said: "The consumer slowdown is prompting customers to switch to cheaper substitute drinks instead, weighing on Diageo’s branded sales.
"Trading down among consumers is a key risk to Diageo’s strategy which has been to focus on quality over quantity. The economic downturn is likely to mean fewer consumers are willing or able to pay more for expensive high margin premium spirits."
Diageo's shares were down over 11% at 2,881p by 0900 GMT.