Guinness maker Diageo was once regarded as an all-weather stock that did well in good times and bad, with the FTSE 100 giant handily outperforming more often than not. No longer.
Diageo’s latest poor earnings drove the stock to a four-year low, with shares now down 29 per cent over the last year and over 40 per cent below 2021′s all-time high.
The problem isn’t Guinness, which has just delivered its seventh consecutive half-yearly double-digit growth. Guinness “is a great news story”, Diageo chief Debra Crew said in the company’s post-earnings conference call with analysts.
Still popular with “the classic rugby lads”, it is increasingly attracting female drinkers. Crew pointed to Guinness’s Nitro Surge, the cap that helps give the “perfect pour of Guinness”, as something that has “done really well” for sales. Additionally, she was gushing about Guinness 0.0, the alcohol-free stout, saying “we literally can’t make enough of it”, necessitating a second Irish factory to keep pace with growth.
Guinness aside though, the results were grim. Annual sales fell for the first time since 2020, dragged down by Latin America’s 21 per cent plunge as well as “cautious” consumers in the US, Diageo’s biggest market.
Diageo’s woes are not unique, with multiple companies recently warning of weak consumer sentiment. Crew reckons the current challenges are “temporary”, saying the consumer environment will recover over time.
She also points to Diageo growing or holding market share in 75 per cent of its markets and to the success of its “premiumisation” strategy that encourages consumers to “drink better, not more”. Still, the world’s biggest spirits company faces obvious headwinds, with younger generations drinking less and the huge popularity of weight-loss drugs potentially impacting overall alcohol consumption.
Bulls hope the current slowdown is simply a result of post-pandemic adjustments. Sceptics will ask if a more profound consumer shift is under way.
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