Diageo shares rose on Thursday as investors hailed strategic progress after a “challenging” period for the drinks giant amid weak demand.
The owner of Guinness and Johnnie Walker told shareholders ahead of its annual general meeting that the group had made progress on its “strategic initiatives” and reiterated its outlook.
Diageo said it had pressed ahead with plans in the United States, where it is seeking to improve its route-to-market channels after excess inventory caused problems last year.
Guinness maker Diageo faces a ‘challenging’ period due to higher costs and lower demand
It also said it was “making good progress” on a restructuring of its business model in Nigeria.
Diageo shares They were up 4.6 percent at midday, but are down 15 percent over the past year.
Russ Mould, investment director at AJ Bell, said: “Shares have risen in the absence of further bad news, rather than evidence of a turnaround.”
The upgrade follows a difficult period for the Guinness producer as inflation pushed up costs and customers swapped premium spirits for cheaper options. In July, Diageo warned that weak consumer confidence could persist into next year.
Mould added: “Having invested heavily in premium spirits, which paid off during the pandemic… Diageo really needs to see a recovery in this part of the market.”
The company also faced problems after a buildup of unsold stock in Mexico and Brazil indicated slowing demand.
Revenue in Latin America and the Caribbean accounts for around 10 percent of the group’s revenue, but Diageo posted a sharp 15 percent drop in its July annual results.
Chief Executive Debra Crew said: ‘The global environment remains challenging for both our industry and Diageo.
‘I believe the fundamentals of global TBA, and particularly the spirits industry, remain strong and I am confident that when the consumer environment improves, growth will return and the actions we are taking will position us well to outperform the market.’
Guinness remains the star of the show for Diageo, with sales of the stout up 5 per cent, despite declining sales elsewhere.
The introduction of Guinness Zero, a non-alcoholic version, is also helping to boost sales of its flagship brand.
Richard Hunter, director of markets at ii, said: ‘The events of the last year have taken the shine off a stock that was traditionally considered a core component of a portfolio.
‘The scale of the challenges ahead is reflected in a share price that has fallen 20 per cent over the past year, compared with a gain of 8.4 per cent for the FTSE100 as a whole and 34 per cent over the past two years.
‘It follows that until an improvement in customer demand becomes apparent, the market consensus in favour of holding the stock is likely to hold.’
