Diageo Shares Fall Amid Latin American and Caribbean Sales Decline

London, GMT – Diageo, the renowned London-based producer of alcoholic beverages, experienced a significant decrease in sales within its Latin American and Caribbean divisions. As a result, the company’s shares have dropped 3.2% to 2,748.5 pence as of 1111 GMT and are down 20% over the past year, currently resting at 2018 levels.

Disappointing Financial Results

Diageo announced on Tuesday that its pretax profit for the six months ending December 31 amounted to $3.08 billion, compared to $3.60 billion during the same period the previous year. This decline in profit was accompanied by a 0.6% decrease in organic net sales, which fell short of the company’s expectations for flat growth. The decrease can be attributed to a 5% decline in organic volume.

Challenges in Latin America and Caribbean

The major contributors to these unfavorable results were the Latin American and Caribbean regions, where Diageo experienced a striking 23% decrease in sales and a 41% decline in operating profit. Currently, this particular region accounts for 11% of the company’s total revenue.

According to Diageo, the decline can be attributed to several factors, including strong double-digit net sales growth in the previous year, reduced consumption, and consumer downtrading due to macroeconomic pressures in the region.

Persistent Challenges

Although Diageo had previously issued a profit warning in November, indicating an anticipated decline, the challenges in the Latin American and Caribbean markets have proven to be more long-lasting than initially expected. High inventory levels coupled with shifts in consumer preferences have created persistent obstacles for the company.

Russ Mould, investment director at AJ Bell, remarked that “Drinkers in Brazil have been switching from spirits to beer, which is traditionally a much lower margin product for the manufacturer. Furthermore, sales through the cash-and-carry channel have been weaker, which has put Diageo in a difficult position.”

This excessive amount of unsold stock held by distributors and retailers has resulted in a negative impact on future orders from Diageo until the surplus is fully absorbed by the system.