30 July 2024
If you are covering Diageo’s latest results, please see the following comment from Chris Beckett, head of equity research at Quilter Cheviot:
"Diageo's recent results are disappointing but not catastrophic. Revenue has remained fairly stable, with a slight decline of 1% both overall and in the second half. Some regions, such as North America and Latin America, continue to face significant challenges. North America is experiencing consumer weakness, which is not an isolated issue but rather one observed across several countries.
"The situation in Latin America is concerning as it was the primary reason for the profit warning earlier in the year. The region's economic conditions have exacerbated inventory issues, leading to a notable loss in margin.
"This 1% sales decline has translated into a more substantial 4-5% decline in profit. While a reduction in margin is never ideal, it is important to note that Diageo's business model is relatively defensive compared to more cyclical industries.
"Guidance remains vague and doesn't provide much optimism for a swift turnaround. However, Diageo is still targeting medium-term sales growth of 5-7%, which, although ambitious, has not been retracted. This indicates some level of confidence in their long-term strategy despite the current difficulties.
"The post-COVID environment has also played a role in Diageo's performance. Consumer spending, particularly in the US, has become more cautious, leading to a normalisation of growth trends that surged during the pandemic.
"Specific issues in Latin America include excess inventory loading, some of which is self-inflicted. Consequently, shares may be down in the short term. However, the long-term outlook for the industry remains positive due to Diageo's strong brand portfolio. The key to recovery will be an improvement in consumer confidence and financial stability."
