Diageo PLC (LSE:DGE) on Tuesday reported a drop in half-year revenue and operating profit, reflecting a 23% decline in Latin America & Caribbean (LAC) sales.
The owner of Guinness, Johnnie Walker and Smirnoff said sales in the first half ended December fell 1.4% to US$11.0 billion, with organic sales down 0.6%, driven by a 23% decline in LAC.
Excluding LAC, organic net sales grew 2.5%, driven by Asia Pacific, Africa and Europe, partially offset by a 1.5% decline in North America.
Reported operating profit in the first six months declined 11.1% to US$3.3 billion, and reported operating profit margin contracted 329 basis points (bps) due to lower organic operating margin and a negative impact from exceptional operating items.
The profit figure failed to match a Bloomberg-cited consensus of US$4.11 billion.
Chief executive Debra Crew said: “The first half of fiscal 24 was challenging for Diageo and our sector, particularly as we lapped strong growth in the prior year and faced an uneven global consumer environment.”
She said the “materially weaker” performance in LAC, was driven by fast-changing consumer sentiment and high inventory levels.
“We have taken action and have further plans to reduce inventory to more appropriate levels for the current consumer environment in the region by the end of fiscal 24,” she added.
However, the firm expects macroeconomic pressures will persist in LAC and impact progress in reducing inventory levels.
As a result, organic net sales in LAC are forecast to decline between 10% and 20% in the second half of the financial year, compared to the second half of financial 2023.
The organic net sales growth rate for the group in the second half is expected to gradually improve compared to the growth rate in the first half.
Diageo expects a gradual improvement in North America in the second half despite uncertainty in the consumer environment.
Net cash flow from operating activities increased by US$0.7 billion to US$2.1 billion and free cash flow increased by US$0.5 billion to US$1.5 billion.
The interim dividend was boosted by 5% to 40.50 cents per share.