Diageo Lowers Outlook as Viral Outbreak Threatens Travel
The company forecast sales growth near the lower end of the 4% to 6% targeted range this year.
(Bloomberg) --
Diageo Plc, the world’s largest distiller, lowered its outlook for sales growth amid weakness in key markets including India as the industry faces risks from trade battles and the spread of the coronavirus.
Sales growth will probably be near the lower end of the 4% to 6% targeted range in the year through June, Diageo said Thursday. Previously Diageo guided to the midpoint. Sales rose 4.2% on an adjusted basis in the six months through December, matching analysts’ estimates.
Chief Executive Officer Ivan Menezes said in a statement that the distiller was facing increased levels of volatility and uncertainty in the global trade environment “and we would not be immune from further policy changes.” Diageo warned investors in September that trade tensions could undermine a positive start to the financial year.
Sales from the travel retail division declined 18%, hindered by rising tensions and challenging trading conditions in the Mideast region and lower passenger traffic in cities including Hong Kong, which has been impacted by social unrest. Growth slowed in India as the economy weakened there. Economic and political unrest in countries such as Mexico, Peru and Chile affected Diageo’s business in Latin America.
Diageo finds it hard to predict when economic conditions might improve in markets such as India, Chief Financial Officer Kathryn Mikells said on a call with journalists.
She said it’s too soon to see what impact the coronavirus will have on business in China, where Diageo owns the Shui Jing Fang baijiu brand and has opened retail outlets for its Johnnie Walker Scotch whisky. Sales grew 24% in the market last year.
Diageo has suspended travel to China, and ensuring the safety of staff in that country is the main priority, she said, adding that the mainland accounts for about 4% of total revenue.
The shares rose 1.1% as of 8:36 a.m. in London. They have dropped about 9% in the past six months.
Diageo benefits from geographic and portfolio diversity, Mikells said. The U.K. division held up fairly well despite concerns Brexit would weigh on consumption. The North American business --which accounts for a third of sales -- delivered revenue growth of 6%, helped by growth of spirits.
To contact the reporters on this story: Thomas Buckley in London at tbuckley25@bloomberg.net;Deirdre Hipwell in London at dhipwell@bloomberg.net
To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier, Anne Pollak
©2020 Bloomberg L.P.