Diageo DGE on Tuesday removed medium-term guidance bemoaning weak demand in key markets and uncertainty over US tariffs.
The move came as the London-based owner of Johnnie Walker whisky and Guinness stout reported a decline in half-year earnings, hurt by “unfavourable” foreign exchange developments.
The firm also said it has made “considerable contingency planning” in recent months in regard to potential US tariffs, which it said will affect its tequila portfolio and Canadian whisky.
“Given our extensive supply chain and broad and advantaged portfolio, there are a number of possible actions to help mitigate the potential impact including pricing and promotion management, inventory management, supply chain optimisation and re-allocation of investments,” Diageo said.
“Some of these actions can be implemented rapidly and others will take time. We will continue to be agile and respond with speed as key details are confirmed.”
In response, shares in Diageo were 3.9% lower at £22.71 pence each in London on Tuesday morning. The wider FTSE 100 was down 0.44%.
Diageo reported pretax profit of $2.77 billion in the six months to Dec. 31, a fall of 9.9% from $3.08 billion. Sales were largely flat at $15.18 billion, while net sales fell 0.6% to $10.90 billion from $10.96 billion. Net sales exclude excise duties.
It put the net sales fall down to “unfavourable foreign exchange”, but noted net sales rose on an organic basis.
Organic sales grew by 1.0%, driven by positive price/mix of 1.2 percentage points offset by a 0.2 point fall in volume.
Net sales were flat in North America, up 3% in Europe, but down 4% in Asia Pacific, down 2% in Latin America & Caribbean and 3% lower in Africa.
Reported operating margin declined by 132 basis points, primarily due to unfavourable foreign exchange and a decline in organic operating margin.
Basic earnings per share declined 12% to 87.1 US cents from 98.6c driven by a significantly lower Moet Hennessy contribution, unfavourable foreign exchange and lower organic operating profit.
Net cash from operating activities was $2.33 billion up from $2.15 billion a year prior. Free cash flow grew to $1.70 billion from $1.57 billion.
Diageo Chief Executive Debra Crew said:
“Our fiscal 25 first half results marked a return to growth, delivering organic net sales growth of 1% despite a challenging industry backdrop as consumers continue to navigate through inflationary pressures. Growth in four of our five regions was supported by market share gains. Notably, in North America, we outperformed the market with high quality share growth and positive organic net sales growth.”
However, Diageo removed medium-term guidance due to the current macroeconomic and geopolitical uncertainty in many of its key markets impacting the pace of recovery. Instead, it plans to provide more regular near term guidance.
Diageo had previously guided to medium-term organic sales growth of 5% to 7%.
Crew added: “While the pace of recovery has been slower in several key markets, we remain confident of favourable long-term industry fundamentals and more importantly in our ability to outperform the market.”
Diageo maintained its interim dividend at 40.50 cents per share.
Diageo said that before the impact of tariffs, it would have expected to “build on the momentum seen in the first half”. It would have “expected to deliver a sequential improvement in organic net sales growth compared with the first half.”
“The confirmation at the weekend of the implementation of tariffs in the US could however impact this building mom6entum. We still expect to continue to deliver strong market share performance,” it said.
“Before taking into consideration the potential impact of tariffs we had expected a slight decline in organic operating profit in the second half of [financial] 25 compared with the prior year, broadly in line with the decline in the first half, reflecting higher staff costs, and continued strategic investments including in digital and US route-to-market. Clearly the implementation of tariffs could further impact this and when we can more accurately assess the impact we will update as appropriate.”
Diageo will give a trading update on May 19.
By Jeremy Cutler, Alliance News reporter
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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