Guinness owner Diageo, the world's largest spirits maker, signalled today that robust demand for its drinks as people made pricey cocktails at home during Covid-19 lockdowns may be slowing in some parts of the world, particularly North America.
The outlook and disappointing North American sales in the first-half overshadowed forecast-beating first-half sales thanks to price hikes and as more people drank premium spirits.
Since the pandemic, Diageo has benefited from people buying more expensive types of alcohol while staying home under lockdown.
The company and its rivals invested heavily in marketing and improving their products to capitalise on newfound demand, focusing on premium brands such as Bulleit Bourbon and Don Julio tequila.
But Diageo's North America business, which accounts for nearly 30% of overall sales, reported organic sales growth of 3% in the six months ended December 31 compared to analyst estimates of over 6%.
The company said it expected North American organic net sales growth to "continue to normalise through the second half of fiscal '23, compared to the double-digit growth in the prior period".
"North America is such an important and high margin part of Diageo that even though the group as a whole beat organic sales estimates comfortably, we think that the US miss is the most significant element of these results," RBC Capital analysts said in a note.
Still, overall organic net sales rose 9.4% in the six months to December 31, beating analyst forecasts for a 7.9% rise.
Diageo said people mainly drank more tequila, scotch and Guinness in the first half of the year.
Its "premium-plus" brands - which are more expensive than brands such as Smirnoff vodka but under about £50 - drove 65% of its organic net sales growth, it added.
The spirits market has been resilient amid a global cost of living crisis that has otherwise hit volumes at other consumer goods companies, with people continuing to buy what they consider occasional treats for themselves even as they trade down to cheaper food brands.
Diageo, which also makes Tanqueray gin, Johnnie Walker, Captain Morgan's rum and Ketel One vodka, also said people were returning to pubs, bars and restaurants in most parts of the world versus towards the end of 2021, when some countries still remained under lockdown.
"The consumer is coming back to on-trade in a very big way around the world," its chief financial officer Lavanya Chandrashekar said in an interview with Reuters, adding that in many parts of the world "on-trade" sales were back to pre-pandemic levels.
The company also said it would return up to £500m to shareholders - in addition to its existing buyback commitment - this financial year.
"We believe we are well-positioned to deliver our medium-term guidance of consistent organic net sales growth in the range of 5% to 7% and sustainable organic operating profit growth in the range of 6% to 9% for fiscal '23 to fiscal '25," its chief executive Ivan Menezes said.
