WSJ: Diageo's Biggest Problem: U.S. Sales Are Flat or Falling

A Wall Street Journal analysis of Diageo's previously scheduled investor day notes the company has explained a sudden downward revision to its previous guidance by pointing to Brazil and Latin America.

Diageo expects organic sales in Latin America to fall more than 20% from a year earlier in the fiscal 2024 first half. At the investor day, Diageo execs attributed the decline in Latin America to higher interest rates and other macroeconomic shocks to the region which hit demand for high-end liquors like whiskey in markets like Mexico and Brazil.

But, the Journal noted, one analyst durigng a question-and-answer session observed that Latin American sales account for only 11% of sales. North America is Diageo's No. 1 market, and sales in the U.S. are flat or falling. "So what's actually happened," the analyst said, "is that the U.S. hasn't recovered as quickly as you hoped to provide a safety net for all the other regions."

Needless to say, the company has a plan to fix this. But that plan will cost money, which means that medium term profits will growth slower than previously expected.

"Increased investment in marketing and innovation might be the right move for the company as it looks for a reset. But recently burned analysts—and investors—will need to see results from that investment before giving management any credit for it," the Jo urnal's "Heard on the Street" columnist wrote.

Diageo stock closed in New York at $139.68, down $3.46 or 2.42%.

It's a tough break for Debra Crew, who took over as CEO earlier than expected following the unexpected death in June of Sir Ivan Menezes. She's facing a tougher U.S. economy than Menezes had recently. U.S. sales fell last month for the first time since March, adding to signs (including slower healing) the U.S. economy is cooling.

Plus, the antialcohol crowd is revving up their attacks, aid by shift in the medical approach of alcohol critics: Alcohol causes cancer. Even a little alcohol can cause cancer. Therefore, there is no safe level at which one can drink.

Also: the no/low alcohol movement seems to be gaining steam. First it was "Dry Jan uary." Now "Sober October" has been added to it, promoted by CNN, CNBC, The Washington Post, the New York Post, NBC, USA Today, CBS News and others.