Diageo shares slump after drinks giant delivers first-half profit warning

Investing.com -- London-listed shares in Diageo (LON:DGE) fell sharply on Friday after the maker of Guinness beer and Smirnoff vodka warned that it expects organic operating profit to drop in the first half of its current financial year.

In a trading update, the group said the forecast stems from anticipated "material weakness" in Latin America and the Caribbean, which accounts for 11% of its total sales value. Net sales in the region are now seen dropping by over 20% in the initial six months of its 2024 period, due to "macroeconomic pressures" that are resulting in "lower consumption and consumer downtrading."

"These impacts are slowing down progress in reducing channel inventory to appropriate levels for the current environment," Diageo said in a statement.

It added that increased trade investment, lower operating leverage and adverse mix were also contributing to the downbeat forecast. Headwinds are also projected to remain from "continued, albeit moderating" cost inflation, which the business plans to offset through higher prices.

However, looking ahead to the second half of 2024, Diageo estimated a "gradual improvement" in organic net sales and operating profit growth compared to the prior six months.

For the 12 months ended on June 30, Diageo reported a 6.5% boost in organic net sales, slightly above company-provided consensus estimates of 6.4%.