Diageo plays down growth predictions over trade uncertainty, but Tequila sales surge

Diageo has scaled back its sales predictions for 2020 as the company tries to weather volatile global trading conditions.

The Johnnie Walker whisky maker reported a 4.2% rise in net sales in the six months to December 2019, down from 5.8% in the first half of the year.

Chief executive Ivan Menezes blamed the slowdown on “uncertainty in the global trade environment,” and said the company expected growth in the first half of this year to be at the lower end of its 4-6% mid-term target. Diageo still reported net sales of £7.2 billion (US$9.3 billion) for the six month period, up from £6.91 billion last year. Pre-tax profit, however, slipped from £2.63 billion to £2.46 billion. Profit for the six months to December stood at £1.9 billion, compared to £2.07 billion in the same period for 2018.

The group’s share price fell by 19.25p to £30.91 on Thursday morning when the results were posted.

An economic slowdown in previously booming India and volatility in Latin America were a particular bugbear for the company in the latter half of 2019.

“We would not be immune from further policy changes,” he said.

Diageo may also face disruption in travel retail as countries start restricting flights to prevent the spread of coronavirus, according to analysts.

“Just two weeks since the first cases of coronavirus were announced and we are already staring to see the potential impact that the deadly bug is going to have on companies across the globe,” said Nigel Frith, a senior market analyst at Ask Traders, adding that this could have a big impact on its operations in China, a “key market” for the business.

“China is also a key market for Diageo where it has retail outlets for Johnnie Walker and owns the brand Shi Jing Fang, sales there are expected to be eroded and significantly.

“With no signs yet of the spread of the virus slowing, this could just be the tip of the iceberg.”

Double digit growth for Tequila

Beyond global headwinds, one thing that does stand out in Diageo’s results is the sharp growth of its Tequila brands, in particular Don Julio, while gin sales also continued to perform well.

Reported net sales of tequila grew 31% across all markets. Tequila brands grew in a number of key markets including Europe, Latin America, and the US, where category sales rose 35%, driven by Don Julio and Casamigos, which Diageo acquired from George Clooney in 2018 in a deal worth US$1 billion. Don Julio sales in the US rose 26% alone in the six months to December.

Globally, Don Julio’s volumes grew 13%, while reported net sales rose 24%.