Tanqueray gin maker Diageo’s U.S. sales lose fizz, shares fall

Tanqueray gin maker Diageo's U.S. sales lose fizz, shares fall
© Reuters. Bottles of Johnnie Walker whisky, a brand of Diageo, are seen for sale in Manhattan, New York City, U.S., May 20, 2022. REUTERS/Andrew Kelly

By Richa Naidu

LONDON (Reuters) – Diageo (LON:DGE), the world’s largest spirits maker, signalled on Thursday that robust demand for its drinks as people made pricey cocktails at home during COVID-19 lockdowns may be slowing in some parts of the world, particularly North America.

The outlook and disappointing North American sales in the first-half overshadowed forecast-beating first-half sales thanks to price hikes and as more people drank premium spirits.

Since the pandemic, Diageo has benefited from people buying more expensive types of alcohol while staying home under lockdown. The company and its rivals invested heavily in marketing and improving their products to capitalise on newfound demand, focusing on premium brands such as Bulleit Bourbon and Don Julio tequila.

But Diageo’s North America business, which accounts for nearly 30% of overall sales, reported organic sales growth of 3% in the six months ended Dec. 31 versus analyst estimates of over 6%.

The company said it expected North American organic net sales growth to “continue to normalise through the second half of fiscal ’23, compared to the double-digit growth in the prior period”.

Its shares were last down 4.3%, making it the morning’s biggest loser on the FTSE index.

“North America is such an important and high margin part of Diageo that even though the group as a whole beat organic sales estimates comfortably, we think that the U.S. miss is the most significant element of these results,” RBC Capital analysts said in a note.

Still, overall organic net sales rose 9.4% in the six months to Dec. 31, beating analyst forecasts for a 7.9% rise. Diageo’s “premium-plus” brands – which are more expensive than brands such as Smirnoff vodka but under about 50 pounds ($61.92), drove 65% of its organic net sales growth, the company said.

The spirits market has been resilient amid a global cost of living crisis that has otherwise hit volumes at other consumer goods companies, with people continuing to buy what they consider occasional treats for themselves even as they trade down to cheaper food brands.

Diageo, which makes Tanqueray gin, Johnnie Walker, Captain Morgan’s rum and Ketel One vodka, also said people were returning to pubs, bars and restaurants in most parts of the world versus towards the end of 2021, when some countries still remained under lockdown.

“The consumer is coming back to on-trade in a very big way around the world,” Chief Financial Officer Lavanya Chandrashekar said in an interview with Reuters, adding that in many parts of the world “on-trade” sales were back to pre-pandemic levels.

GRAPHIC: Europe’s spirits makers rally – https://fingfx.thomsonreuters.com/gfx/mkt/jnpwywnnbpw/diageo.PNG

($1 = 0.8076 pounds)

Source: Reuters