Diageo PLC (LSE:DGE) has a 'sell' rating slapped on it by UBS, adding its voice to a growing list of brokers expressing concern about the pricing trends in the US spirits sector.
The Swiss bank sees weak pricing extending into 2025 with its concern that the industry is losing its pricing power as consumers become more price-sensitive.
Prices have turned negative in the super-premium segment (more than US$30) with premiumisation trends weak generally.
“These factors make the prospects of a return to 4-5% category value growth less achievable in 2025.”
“Campari (Buy) and Brown-Forman (Neutral) are delivering positive pricing, while pricing has turned flat/ negative for Diageo (Sell), Pernod (Neutral) and Remy (Neutral).”
According to UBS, US headline spirits pricing this year is growing 2.2%, well below beer at 3%, CPI at 4.5% and other categories.
These softer prices are a concern for 2025 industry value growth, it adds.
Management teams blame the pricing weakness on retailers trying to stimulate traffic, notes UBS, but in its view, it reflects the trade's perception of category health/brand equity, which will “inevitably impact the companies in the short or medium term.”
Shares in Diageo eased 0.6% to 2,534p.