Diageo logs profit slump as shoppers shift to cheaper drinks

British drinks group Diageo, the maker of Guinness stout, said Tuesday that first-half net profits sank on plunging demand in Latin America and the Caribbean, tipping its share price lower.

Profit after tax dropped 18 per cent to $2.2 billion (£1.73bn) in the six months to the end of December from a year earlier, the alcoholic beverages company said in a statement, having already warned over the outlook for the key region.

Diageo, whose brands include Smirnoff vodka, Baileys liqueur and Johnnie Walker whisky, revealed that some shoppers were shifting towards cheaper drinks amid elevated inflation and an uncertain economic climate.

Sales slid 1.4 per cent to $11 billion in the reporting period, as a 23-percent slump in Latin America and the Caribbean eclipsed a 10-percent gain in Europe.

The performance was also hit by unfavourable foreign exchange rates, it noted.

“The first half… was challenging for Diageo and our sector, particularly as we lapped strong growth in the prior year and faced an uneven global consumer environment,” said chief executive Debra Crew in the earnings release.

She added that “fast-changing consumer sentiment and high inventory levels significantly impacted total business performance” in the period.

In late morning deals, Diageo shares sank 3.3 per cent to £27.48 on London’s FTSE 100 index, which was up 0.5 per cent.

“Diageo served up an expectedly underwhelming set of first-half results, leaving a bad taste in investors’ mouths,” said equity analyst Aarin Chiekrie at stockbroker Hargreaves Lansdown.

“Despite the diversity of its drinks portfolio, the group measured a small revenue decline.”