Diageo cuts guidance and dividend on tough US trading

(Sharecast News) - Diageo cut its full-year guidance and halved the dividend on Wednesday, after weak trading in North America weighed heavily on the drinks giant. Posting interim numbers, the owner of Smirnoff, Guinness and Johnnie Walker, among others, said strong sales growth in Europe, Latin America and Africa had been more than offset by a weakening performance in North America. US spirits in particular had been hit by ongoing pressures on disposable income and stiff competition from cheaper alternatives.

Chinese white spirits also struggled in Asia Pacific.

As a result, net sales slid 4% to $10.5bn in the six months to 31 December. On an organic basis, sales fell 2.8%, driven by a 0.9% decline in organic volumes and a negative price/mix of 1.9%. Adjusted operating profits before one-off items were 2.8% lower at $3.3bn.

The dividend was cut to 20 cents a share, from 40.5 cents. Diageo said the reduction would "accelerate the strengthening of the balance sheet and create more financial flexibility".

The blue chip also cut its full-year outlook. It now expects organic net sales to fall by between 2% and 3% this year, primarily due to ongoing weakness in the US.

Organic operating profit growth is forecast to be in the range of flat to low-single digit.

Newly-installed chief executive Dave Lewis, the former boss of Tesco, said: "Only several weeks in I can already see significant opportunities for Diageo to act more decisively to enhance its competitiveness and broaden the portfolio offering, leading to higher growth.

"To deliver on these opportunities, we need to create more financial flexibility. Accordingly, the board has taken the difficult decision to reduce the dividend to a more appropriate level.

"We are confident that this is the right action."