UK – Global beverage giant Diageo, owner of popular brands like Don Julio, has reported a 0.6 percent drop in organic net sales during the first half of fiscal 2024.
The reported net sales for this period, spanning July to December 2023, declined by 1.4 percent to US$11 billion. The company attributed this downturn to an unfavorable foreign exchange rate of US$167 million and a substantial 23 percent plunge in the Latin America and Caribbean (LAC) region.
Diageo had previously issued a warning in November about the anticipated double-digit drop in the LAC region. Excluding the impact of LAC, reported net sales demonstrated growth, increasing by 0.7 percent, while organic net sales increased by 2.5 percent.
The positive growth was driven by regions such as Asia Pacific, Africa, and Europe, though partially offset by a 1.5 percent decline in North America.
The decline in the LAC region is attributed to a challenging comparison basis from the previous year when sales experienced double-digit growth. Additionally, consumers in the current economic climate are reportedly drinking less and trading down.
Diageo’s reported operating profit also took a hit, declining by 11.1 percent to US$3.3 billion. The reported operating profit margin contracted by 329 basis points due to lower organic operating margin and a negative impact from exceptional operating items.
Debra Crew, Chief Executive of Diageo, said, “While North America delivered sequential improvement in line with our expectations, we are focused on returning to high-quality share growth as consumer behaviour continues to normalize in our largest region.”
In the United States, net sales from spirits experienced a 2 percent decline, affecting various categories, including a 5 percent drop in Tequila, 4 percent in vodka, 2 percent for Crown Royal whisky, and a notable 13 percent decrease for Johnnie Walker Scotch.
Addressing concerns about the impact on Diageo’s focus on premium and above products, Crew emphasized their belief in premiumization, stating, “We believe in premiumization. The US market is a good example of this super-premium-plus price. That’s what’s growing. If you look at premium and below, it’s actually in decline.”
The financial results come after Diageo settled lawsuits with Sean ‘Diddy’ Combs, bringing an end to their association with the DeLeón Tequila and Cîroc Vodka brands.
Diageo agreed to purchase the remaining 50 percent stake in DeLeón from Combs for approximately US$200 million, solidifying its full ownership of the brand.
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