Copyright Forbes
Shares in Diageo have extended their long-running slump on Thursday, after the Guinness maker cut guidance due to fresh sales troubles. Diageo’s share price was last trading 2.4% lower, at £17.53. At $4.9 billion, the FTSE 100 company’s net sales declined 2.2% in the three months to September. This chiefly reflected the negative impact of asset disposals, it said. Organic net sales flatlined in the first fiscal quarter, meanwhile. Though group volumes improved 2.9% year on year, this was offset by a negative price/mix of 2.8%. Diageo said that its lack of growth was “largely due to adverse mix in Asia Pacific due to the weaker results in China in Chinese white spirits (CWS).” The company estimated that weak CWS sales took a bite out of quarterly net sales to the tune of 2.5%. Asia Pacific net sales dropped 9.7% and 7.5% on a reported and organic basis respectively between July and September. North America Struggles Elsewhere, Diageo said that organic net sales growth in Europe, Africa and its Latin America and Caribbean was also offset by disappointing North American sales. Reported net sales dropped 3.5% in the company’s single largest market. On an organic basis the decline was easier, at 2.7%. Diageo noted that weak North American sales were “driven by a challenging environment across consumer goods.” It added that “while we had planned for a cautious US consumer environment, the overall spirits market was softer than expected, with increased competitive pressure, particularly in tequila.” In Europe, net sales rose 5.1% on a reported basis last quarter, and 3.5% from an organic standpoint. Diageo said performance in its second-largest territory was thanks to “sustained strong momentum in Guinness and good overall performance despite the continued challenging backdrop.” Guidance Cut Following the weak quarter, Diageo now expects full-year organic net sales “to be flat to slightly down including the adverse impact from Chinese white spirits and a weaker US consumer environment than originally planned for.” The company had previously predicted zero growth for the year. Meanwhile, organic operating profit growth “is expected to be low to mid-single digit.” This had previously been pegged at mid-single-digit percentages. Diageo affirmed its free cash flow guidance of $3 billion for the full year, and cost savings of $625 million over three years under its Accelerate restructuring programme. Trouble Ongoing Interim chief executive Nik Jhangiani said that “we are not satisfied with our current performance and are focused on what we can manage and control; acting with speed to drive efficiencies, prioritising investment and adapting more quickly to an evolving consumer environment.” He added that “we are well advanced in sharpening our strategy, and we are developing and already implementing clear plans to drive growth across the broader portfolio, ensuring that we meet relevant consumer occasions of the future.” Jhangiani stepped in as temporary CEO in July following the departure of Debra Crew. Analyst Garry White of Charles Stanley said Diageo’s latest update “Diageo’s first-quarter update offered little cheer,” adding that “investors are pressing for clarity after Debra Crew’s abrupt July exit, and the board’s ability to secure a credible leader will be critical to restoring confidence and steering Diageo through a tougher spirits market.” Royston Wild owns shares in Diageo.
