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A sign is seen at the headquarters of Diageo in London, UK. File photo: TOBY MELVILLE/REUTERS
A sign is seen at the headquarters of Diageo in London, UK. File photo: TOBY MELVILLE/REUTERS

London — Diageo withdrew its ambitious sales growth target on Tuesday in an acknowledgment that a prolonged downturn in demand and uncertainty over US President Donald Trump’s tariffs require the spirits sector to make big adjustments.

While investors welcomed the removal of targets they regarded as increasingly unrealistic, shares in the world’s largest distiller dropped 4% in early trade on Tuesday. They hit the lowest since 2020, making the company one of the biggest losers on London’s FTSE 100.

The company. whose products include Johnnie Walker whisky and Don Julio tequila, said it had withdrawn its guidance for medium-term organic net sales growth of between 5% and 7% because macroeconomic and geopolitical uncertainty were slowing recovery.

The threat of US tariffs on Mexico and Canada from March added “further complexity” about earnings guidance and threatened $200m worth of operating profit in the second half, executives said.

Nik Jhangiani, Diageo’s new finance chief, said work was under way that would leave the company “better placed when the market recovers”.

Jhangiani joined in September and was tasked with refreshing the narrative and addressing investor concerns, including the sales target.

The goal was set by previous CEO Ivan Menezes in 2021 when the industry enjoyed strong growth as pandemic lockdowns led drinkers to spend their spare cash on pricey liquor.

Since then, consumers’ savings have dwindled under the impact of high interest rates and inflation.

Current CEO Debra Crew took the job in June 2023, months before a November profit warning that shook confidence in Diageo’s management.

“We welcome the removal of the medium-term guidance ... In our view this resulted in unrealistic expectations on the part of investors and suboptimal management decisions designed to support an unfeasible growth aspiration,” analysts at RBC Capital Markets said in a note.

Some investors are concerned that societal shifts, such as a trend towards avoiding alcohol because of health concerns and the possibility weight-loss drugs suppress the desire to drink, threaten growth in the long term.

Moritz Kronenberger, a portfolio manager at Germany’s Union Investment, a Diageo shareholder, said the lack of new growth guidelines added to uncertainty regarding the sector’s growth prospects.

“I can see the pressure is easing,” he said of the industry’s challenges, but added it was unclear when the US market would recover, especially as tariffs loom.

Reuters

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