London spirits maker Diageo's shares dropped 8% in early trading as it reported plummeting sales in Latin America and the Caribbean. The spirits maker warned that challenges remain.
ADVERTISEMENTThe company behind famous beverages such as Smirnoff and Baileys have had difficulty restoring investor confidence since unsold inventory in Brazil and Mexico led to a decrease in market share and a profit warning in the US, home to the brand's largest consumer base.
Market Analyst AJ Bell said: "Diageo's shares have tanked once again on the latest results. Investors won't like the figures, nor will they like the absence of a new share buyback programme and the fact the balance sheet is close to getting out of the company's comfort zone. Diageo targets 2.5 to 3 times net debt to adjusted earnings and the leverage ratio is now sitting at the top end.
As the brand saw a 21.1% drop in sales in Latin America and the Caribbean, its annual organic operating profit declined substantially by 4.8%.
Chief Executive Debra Crew explains that steps are being taken to resolve its regional issues and improve performance.
While these steps could potentially guide the brand to growth, Crew said it is difficult to assess when the company would see net sales increases of between 5% and 7% per year - its medium-term goal.
Crew added: "It's really hard to call ... what we are doing is controlling what we can." She also suggested that low consumer confidence and high inflation also played into sales performance.
Following comments from other consumer companies that have expressed concerns that US consumer confidence is under pressure, RBC Capital analyst James Edwardes Jones indicated this was "not reassuring".
"We expected these results to be grim, and so they were", he said.
Analysts had warned of a 4.5% slump in annual operating profit. Diego said at one stage that sales in Latin America and the Caribbean would drop between 10% and 20%.
Group net sales also came in slightly worse than expected, falling 0.6%.
