Diageo slips on Latin American and Caribbean disappointment

Diageo shares dipped on Tuesday after the drinks giant confirmed disappointing sales in the Latin American and Caribbean region, culminating in overall group revenue declining 1.4% in the first half.

Diageo signalled slower sales in a recent trading update, so today’s news wouldn’t have surprised investors expecting downbeat half-year results.

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In addition to slower sales in  Latin America and the Caribbean (LAC), North American sales fell 1.5%, although Diageo said sales in the region have since bounced back. Asia Pacific, Africa and Europe were the bright spots for the company.

Diageo shares were down 3.8% at the time of writing on Tuesday but are still higher than the worst levels since the group first announced slowing LAC sales in November.

“Diageo shareholders will not be raising a glass to the company’s update this morning. The world’s top spirits maker missed first half sales estimates due to a sharp decline in Latin America which weighed heavily on the group results,” said Mark Crouch, analyst at investment platform eToro.

“A concoction of persistent economic pressures and supply chain disruptions will feel like a lingering hangover for the company and their investors, with a profit warning in November capping off a miserable year which saw the share price fall over 20%.”

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Diageo expects further weakness in LAC in the second half, dragging on overall group profitability. However, this may prove to be a low point, with analysts suggesting the medium-term may be more favourable for the company.

“The profit outlook remains murky for the second half, with markets now forecasting a small decline in operating profit. The medium-term looks slightly brighter, but improvements in the Latin American and Caribbean market will be key to future margin expansion, and to a large extent, that’s outside of Diageo’s control,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

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