Guinness owner worsens outlook due to weak demand in China and the US. What about the stock?

Britain's Diageo, maker of Guinness and Johnnie Walker, cut its revenue and profit outlook, citing weakening consumer demand in the U.S. and China. Its organic revenue didn't grow last quarter, and the company doesn't expect it to expand for the full fiscal year, which began in July. Diageo shares in London and receipts in New York fell in price after the report, but analysts estimate the securities' upside potential at 30%.

British alcoholic beverage maker Diageo, which produces Guinness beer and Johnnie Walker whiskey, has lowered its revenue and profit forecast for the full fiscal year due to weak demand in China and the U.S. The company now expects organic revenue to remain at the same level as last year or even decline slightly. Last fiscal year, the metric grew 1.7% and the company expects the same for the current fiscal year. Diageo has also worsened its expectations for organic growth in operating profit.

The company reported that organic revenue for its fiscal first quarter, which ended Sept. 30, was on par with the same period last year, while analysts had forecast a decline of about 1.1%. Net revenue fell 2.2% to 3.75 billion pounds ($4.9 billion). Diageo did not disclose its profit.

The company's shares at the trading in London collapsed by almost 6%, since the beginning of the year it has already lost a third of its value. The company's depositary receipts fell in price by about 5% on the premarket in New York on November 6.

The spirits maker is facing a shift in consumer spending habits and, in particular, a decline in spending amid the ongoing impact of U.S. trade duties, Bloomberg explained. In the U.S. market, where Diageo generates the bulk of its revenue, consumer spending has been more subdued than expected, leading to deteriorating conditions across the spirits market, the Independent noted.

The company also noted increased competitive pressures, especially in the tequila segment, where sales declined by double-digit percentages. Don Julio tequila has long been a key growth driver for Diageo in North America. The manufacturer also reported a sharp drop in sales in China, due to weakening demand for spirits, including the national baijiu.

Following the report, RBC reiterated a recommendation to hold Diageo shares in its portfolio and a target price of 22 pounds. Its target assumes growth of quotations by 22.4%. "Don Julio seems to have stopped defying gravity", - admitted RBC analyst James Edwards-Jones, he is quoted by Reuters.

Earlier this week, UBS remained bullish on the company (Buy rating), setting a target price of £22.5, implying upside potential of 25%.

Of the 22 analysts covering Diageo shares, 13 advise buying them. Seven took a neutral stance, while two suggest selling. The average target for the company's depositary receipts is more than 30% higher than the quotes at the last close, according to MarketWatch.

This article was AI-translated and verified by a human editor