Diageo shares rise as restructuring makes progress

Diageo shares rose on Thursday as investors toasted strategic progress after a ‘challenging’ period for the drinks giant, amid weak demand. 

The Guinness and Johnnie Walker owner told shareholders ahead of its AGM the group had made progress on its ‘strategic initiatives’ and reiterated its outlook.

Diageo said it had pushed forward with its plans in the US, where it is looking to improve its route-to-market channels after excess inventory caused problems last year.

Guinness maker Diageo is facing a ‘challenging’ period due to higher costs and lower demand

It also said it was ‘progressing well’ in a restructuring of its business model in Nigeria.

Diageo shares were up 4.6 per cent by midday, but are down 15 per cent in the past year.

Russ Mould, investment director at AJ Bell said: ‘The shares have jumped because of the absence of further bad news, rather than evidence of a turnaround.’

The update follows a difficult period for the Guinness producer as inflation pushed costs higher, and customers swapped premium spirits for cheaper options. In July, Diageo warned that weak consumer confidence could persist into next year.

Mould added: ‘Having staked a position very much 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 issues after a build-up of unsold stock in Mexico and Brazil indicated dampening demand.

Revenues in Latin America and the Caribbean account for around 10 per cent of the group but saw a sharp 15 per cent drop in Diageo’s full-year results in July.

CEO Debra Crew said: ‘The global environment remains challenging for both our industry and Diageo.

‘I believe that the fundamentals for global TBA, and particularly the spirits industry, remain strong and am confident that when the consumer environment improves, growth will return and the actions we aer taking will position us well to outperform the market.’

Guinness continues to be the star of the show for Diageo, with sales up 5 per cent of the stout, despite declining sales elsewhere.

The introduction of Guinness Zero, a non-alcoholic version, is also helping drive sales of its flagship brand.

Richard Hunter, head of markets at ii said: ‘The developments over the last year have taken the sheen from a stock traditionally regarded as a core portfolio constituent.

‘The scale of the challenges ahead is reflected in a share price which has fallen by 20 per cent over the last year, as compared to a gain of 8.4 per cent for the wider FTSE100 and by 34 per cent over the last two years. 

‘It therefore follows that until such time as an improvement in customer demand becomes evident, the market consensus of the shares as a hold is likely to remain in place.’