Diageo Discontinues Medium-Term Sales Projections

Diageo’s shares fell 0.21% to 2360 pence following disappointing results for H1 2024/2025, leading to the abandonment of its medium-term growth forecasts due to macroeconomic uncertainties. Competitors like Pernod Ricard and Rémy Cointreau also faced declines. Despite a 1% rise in organic net sales, operating profit dropped 4.9%, influenced by unfavorable exchange rates. Earnings per share decreased by 9.6%, while free cash flow increased slightly to $1.7 billion.

Diageo Faces Challenges in H1 2024/2025

Diageo has experienced a slight decline of 0.21%, bringing its shares down to 2360 pence after revealing underwhelming results for the first half of the fiscal year 2024/2025. The renowned British spirits manufacturer, known for iconic brands like Johnnie Walker and Guinness, announced the abandonment of its medium-term forecasts, citing the ongoing macroeconomic and geopolitical uncertainties impacting numerous markets. Just last November, the company had set ambitious goals for a medium-term organic growth trajectory of 5% to 7% in net sales.

Impact on Competitors and Future Outlook

This disappointing performance has also affected Diageo’s French rivals, with Pernod Ricard witnessing the largest drop in the CAC 40, falling 1.57% to 106.25 euros. Similarly, Rémy Cointreau experienced a notable decline of 1.79%, trading at 52.22 euros on the SBF 120. Diageo acknowledges the challenges in its recovery pace, stating, “We will provide more regular short-term forecasts.” According to UBS, the outlook for the second half suggests a slight decrease in organic EBIT, with consolidated EBIT potentially declining by approximately 1% this fiscal year, particularly if tariffs come into play.

In the first half, Diageo managed to achieve a 1% growth in organic net sales, totaling 10.9 billion dollars, with a positive price/mix ratio contributing 101 million dollars, despite a volume decline of 0.2%. However, UBS points out that Diageo’s organic revenue growth in North America (+0.2%) fell short of expectations (+1%), as strong performance in the Tequila segment was offset by weaknesses in other areas.

The reported operating profit saw a decrease of 4.9%, settling at 3.155 billion dollars, while the operating margin dropped by 132 basis points, largely due to unfavorable exchange rates and a decline in the organic operating margin. Overall, the organic operating profit decreased by 42 million dollars, or 1.2%, with the organic operating margin down 69 basis points to 29%. This decline is attributed to ongoing investments in overheads, which were partially balanced by reduced marketing expenses and a positive gross margin expansion.

Furthermore, earnings per share before exceptional items fell by 9.6% to 97.7 cents, primarily due to a significantly lower contribution from Moët Hennessy and adverse exchange rates. On a positive note, free cash flow saw a modest increase of 0.1 billion dollars, reaching a total of 1.7 billion dollars.

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