Investing.com -- Diageo (LON:DGE) on Tuesday withdrew its medium-term sales forecast, citing ongoing macroeconomic and geopolitical uncertainty as major factors affecting its ability to provide reliable long-term guidance.
The decision, outlined in the company’s interim financial results for the half-year ending December 31, 2024, marks a shift in strategy as the company navigates an increasingly volatile global market.
“Given the current macroeconomic and geopolitical uncertainty in many of our key markets impacting the pace of recovery, we have removed our medium-term guidance of 5-7% organic net sales growth,” the company said in a statement.
Instead of offering a fixed outlook for the coming years, the global drinks giant, known for brands such as Johnnie Walker and Guinness, stated that while it remains confident in long-term industry fundamentals, will now provide more frequent short-term updates to reflect the rapidly evolving market conditions.
“The notorious 5-7% medium-term sales and EBIT growth guidance has been withdrawn, to be replaced by more comprehensive short-term guidance and we are promised enhanced productivity efforts and tighter capital discipline (although for this year capex guidance remains at the high end of previous guidance),” said analysts at RBC Capital Markets in a note.
The company emphasized that while it remains confident in the long-term fundamentals of the spirits industry, the near-term outlook requires a more flexible and adaptive approach.
The decision comes against a backdrop of a challenging operating environment for the beverage industry. Inflation continues to affect consumer spending habits, with higher costs for raw materials and production impacting profit margins.
Additionally, the global trade landscape has grown increasingly complex, particularly with the recent introduction of US tariffs on imported goods from Canada and Mexico, which could significantly impact Diageo’s tequila and Canadian whisky businesses.
The company acknowledged that these tariffs add further complexity to its ability to provide accurate future guidance, as the full impact on sales and supply chains remains uncertain.
Despite these headwinds, Diageo reported modest growth in its latest financial results. Organic net sales increased by 1% in the first half of the fiscal year, driven by price increases and positive product mix, though this was partially offset by a slight decline in volume.
However, reported net sales fell by 0.6% due to unfavorable currency exchange movements, while reported operating profit declined by 4.9%.
Regional performance varied significantly. North America, Diageo’s largest market, showed resilience, with high-quality share growth in key brands such as Don Julio and Crown Royal.
Europe also delivered stable results, particularly with the continued strong performance of Guinness. In contrast, Asia-Pacific and Latin America faced more significant challenges, with weaker consumer demand, inventory adjustments, and economic slowdowns affecting sales in those regions.
Diageo’s leadership reaffirmed its confidence in the long-term prospects of the spirits industry, noting that consumer demand for premium alcoholic beverages remains strong in many markets.
The company said its future growth will be driven by ongoing investments in digital upgrades, supply chain improvements, and new distribution methods. However, it recognized the changing economic environment and the need to adapt.
Diageo's decision to withdraw its medium-term forecast reflects the uncertainty multinational companies face in the current economic climate.
While Diageo is still confident it can outperform the market eventually, it's taking a more careful, reactive approach to short-term forecasting. Investors and analysts will now rely on Diageo's regular updates for better understanding of how it's handling these changing conditions.
“The results themselves were fine. Guidance for the full year (slight year-on-year reduction in organic EBIT) implies a couple of percent reduction in EBIT consensus, but we are not unduly concerned by this,” RBC added.