Diageo faced a significant hit to its share price after announcing its first sales reversal in over a year. The drinks giant saw its net sales drop to $20.3 billion for the 12 months to June, marking a 1.4% decrease compared to the previous year. This decline was attributed to an unfavorable foreign exchange impact, organic net sales decline, and hyperinflation adjustments. As a result, pre-tax profit also decreased by 3.2% to $5.5 billion.
Organic net sales for Diageo dropped by 0.6% year on year, driven by a 3.5% decline in volume offset by a positive price/mix of 2.9%. The company’s Latin America and Caribbean (LAC) territory suffered the most significant blow, with organic net sales plummeting by 21%. However, excluding LAC, Diageo’s sales increased by 1.8% year on year. North America, the company’s largest territory, experienced a 3% decline in organic net sales due to weak spirits demand.
Despite these challenges, Diageo saw growth in other regions such as Europe, Asia Pacific, and Africa. In Europe and Asia Pacific, organic net sales increased by 3% and 4% respectively, while Africa saw a substantial 12% growth driven by price increases. The company’s free cash flow improved by $400 million year on year, leading to a 5% increase in annual dividends from financial 2023 to 103.48 US cents per share.
Looking ahead, Diageo acknowledged the persisting difficulties in the trading landscape for the new financial year. The company remains focused on strengthening its business resilience and winning quality market share to drive sustainable organic net sales growth. Diageo maintained its medium-term growth target of 5% to 7% while anticipating continued pressure on organic operating margins in fiscal year 2025. CEO Debra Crew highlighted the challenges faced in fiscal year 2024 but expressed confidence in the company’s positioning for future growth.
Analysts have noted that Diageo’s sales decline was worse than initially expected, attributing it to increased competition and consumer price consciousness. Economic pressures, especially in regions like Latin America, have impacted consumer spending on luxury drinks. The company is hopeful that a potential improvement in the cost of living, supported by global interest rate adjustments, could revitalize sales. Despite the tough period, Diageo remains optimistic about its long-term growth prospects and is taking necessary steps to navigate the challenging market conditions.
