Diageo PLC (LSE:DGE) imminent update looks set to leave investors nursing a hangover.
Citi expects the drinks group’s first-quarter organic sales growth to fall 1.8%, worse than the consensus forecast of a 0.7% decline, prompting the broker to trim its outlook for the year.
The weakness, it says, stems from three fronts: a tougher regulatory backdrop for premium spirits in China’s bars and restaurants, subdued consumer demand in the US according to Nielsen data, and slower trading in India after tax changes in Maharashtra.
Some short-term relief from inventory build-up in North America ahead of tariffs will not be enough to offset these pressures.
Citi now forecasts full-year organic sales growth of 0.9%, down from management’s 1.7% guidance. With the key holiday trading season looking uncertain, consensus earnings estimates are likely to edge lower, leaving few near-term triggers for a rerating.
Still, the bank remains constructive on the longer-term story. It expects Diageo’s spirits business to resume steady growth of 3% to 5% over time and sees potential for balance sheet improvement through asset disposals.
Citi keeps its 'buy' rating but nudges its target price to £24.80.