Spirits giant Diageo has warned that challenges could persist into next year after missing full-year profit expectations.
The maker of Johnnie Walker whisky and Tanqueray gin has struggled to restore investor confidence after a build-up of unsold inventory in Mexico and Brazil caught the company by surprise in November, and prompted a profit warning.
Sales in the region fell 21.1% over the year to 30 June – a slightly deeper decline than Diageo had anticipated – dragging its group sales and profit just below analyst expectations, down 0.6% and 4.8% respectively.
Chief executive Debra Crew said Diageo had taken steps to resolve problems in the region and beyond, which she was confident would ultimately restore growth.
However, she warned that factors that had hurt Diageo's performance, including low consumer confidence, could persist into next year. It was difficult to say when the company could return to its medium-term goal of annual sales growth of between 5% and 7%.
"It's really hard to call," she said.
RBC Capital analyst James Edwardes Jones said this was "not reassuring" given warnings from other consumer companies that U.S. consumer confidence is under pressure.
Too Many Negatives
It seems unlikely that Diageo will meet its sales target within the next two years, said Fintan Ryan, an analyst at stockbrokers Goodbody.
Aside from Guinness, most Diageo products including key categories like whiskey and tequila saw lower sales, he said, adding that the company did not predict any material change next year.
Some analysts and investors have called Diageo's medium-term sales guidance too ambitious, especially with sales down 3% in North America, its largest division.
Crew said Diageo had resolved problems with excess inventory in the United States, but consumers remained cautious.
"They haven't regained confidence yet," said Moritz Kronenberger, a portfolio manager at Germany's Union Investment, a Diageo investor, adding that sticking to the medium-term sales target given recent performance was damaging to credibility.
"There are too many negative parts not turning positive," he said.
