Shares in Diageo, the world's largest spirits company, fell more than 11% on Friday after it issued a profit warning due to weak demand in Latin America and the Caribbean. The maker of Guinness and Johnnie Walker said cash-strapped consumers in the region are drinking less and switching to cheaper brands.
The profit downgrade comes less than two months after Diageo told investors it expected an improvement in sales growth in the first half of its financial year. However, the company now says a 'materially weaker' performance in Latin America and the Caribbean will lead to a slower growth rate.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: 'Very tough economic conditions in Latin America mean consumers are cutting back and trading down to less premium options.' She added that there are concerns the trend could spread to other markets.
Diageo said it expects organic operating profit for the first half of fiscal 2024 to decline compared with the same period last year. However, it anticipates a 'gradual improvement' in the second half and plans to continue investing in its brands.
Victoria Scholar, head of investment at Interactive Investor, noted that alcohol is typically seen as economically resilient, but the trading down trend poses a key risk to Diageo's strategy of focusing on premium spirits. She also said slower momentum is expected in Europe and Asia Pacific.
