Diageo PLC, the prominent spirits and beer company, experienced a significant decline in its market worth on Friday. This downturn was triggered by its cautionary announcement regarding a pronounced deceleration in business across Latin America and the Caribbean, impacting both sales and prospective profits.
During the initial trading hours in London, the company witnessed a 14% decline in its share price. This drop followed the company’s communication to investors, indicating an anticipated slowdown in growth for the first half of the current financial year compared to the preceding half-year.
It attributed the “materially weaker” outlook in Latin America and the Caribbean to “macroeconomic pressures” and customers shifting to more affordable products, leading to a downturn. This geographic segment constitutes approximately 11% of Diageo’s overall sales.
Investors were taken aback by this development since the company, known for its portfolio including Johnnie Walker whisky, Captain Morgan rum, and Guinness, had earlier suggested a “gradual improvement” in sales growth.
The group emphasized its anticipation of growth improvement in North America, and it reported “continued momentum” in its businesses in Europe and the Asia Pacific, albeit at a slower pace compared to the preceding half-year.
Debra Crew, Diageo’s Chief Executive, noted that the company has observed repercussions from tensions in the Middle East, including the conflict in Gaza.
“It has impacted results for the region since we have stopped trading in some parts,” he said. “It is certainly not the largest part of Europe and Asia Pacific, but we have seen an impact since the tensions and it is weighing on consumer sentiment a little bit more broadly, but this has just been the last few weeks.”
Sophie Lund-Yates, the primary equity analyst at stockbrokers Hargreaves Lansdown, mentioned that Diageo possesses formidable brand strength. However, she added that Friday’s warning might raise concerns about the possibility that a “shift in preferences could have implications for other, more significant markets.”