Diageo shares jump on guidance hold amid 'challenging' market

In a brief trading statement ahead of its annual general meeting, chief executive Debra Crew said consumers continued to be “cautious”. The maker of Guinness and Smirnoff in July reported a drop in full-year organic operating profit as it pointed to a weaker performance in Latin America and the Caribbean.

“We are focused on strengthening the resilience of our business through operational excellence, productivity and strategic investments to win quality market share,” Crew said.

“We have made good progress on our strategic initiatives, including our US route-to-market enhancements, and in Nigeria we are progressing well towards completion of the agreement to restructure our business model there.”

AJ Bell investment director Russ Mould said the fact trading was still in line with expectations was "prompting some relief after a period when many shareholders will have been left drowning their sorrows. The shares have jumped because of the absence of further bad news, rather than evidence of a turnaround".

“The problems the company faced in Latin America, where it had far more inventory than it needed, hinted at issues with controls and discipline in at least one area of the business. Having staked a position very much in premium spirits, which paid off during the pandemic when people were unable to go out and were buying high-end whisky, tequila and rum to consume at home, Diageo really needs to see a recovery in this part of the market."

“If Diageo remains in the doldrums for much longer it could attract activist interest or potentially a takeover bid. There could conceivably be pressure to break up the group with Guinness being hived off from the spirits brands.”

Reporting by Frank Prenesti for Sharecast.com