Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Diageo PLC (DEO, Financial) achieved record productivity savings of nearly $700 million.
- The company generated $2.6 billion in free cash flow while continuing to invest for long-term growth.
- Diageo PLC (DEO) gained or held market share in over 75% of its net sales value in measured markets, including the US.
- The company saw resilient growth in Africa, Asia Pacific, and Europe, offsetting declines in North America.
- Guinness brand experienced strong growth, driven by innovation and increased consumer engagement.
Negative Points
- Group organic net sales declined by 0.6%, primarily due to weaker performance in the Latin America and Caribbean (LAC) region.
- The consumer environment remains challenging, with expectations of continued volatility into fiscal '25.
- North America experienced a decline in sales due to a cautious consumer environment and retailer inventory adjustments.
- There is significant competitive activity and down trading in key markets like Mexico, impacting market share.
- The company faces ongoing pressure on operating margins due to strategic investments, salary inflation, and top-line pressure.
Q & A Highlights
Q: Can you clarify your comments on inventory levels as we head into fiscal 2025? Are stock levels appropriate now, or is further destocking expected, particularly in the US?
A: Debra Crew, CEO: We ended fiscal '24 with appropriate inventory levels globally, except for Mexico due to its volatile environment. In the US, distributor inventory is fine, but retailer destocking continues due to high interest rates. We are closely monitoring the situation to avoid past issues.
Q: How do you view the timing of recovery for the US industry, and what factors will drive a return to mid-single-digit growth?
A: Debra Crew, CEO: The US industry grew in low single digits in fiscal '24, with core spirits price mix holding up. Recovery depends on consumer sentiment and economic factors like interest rates. We focus on share growth and believe in the long-term fundamentals of premiumization and spirits gaining share from beer and wine.
Q: Could you elaborate on your fiscal '25 outlook, particularly regarding organic growth and EBIT margin expectations?
A: Debra Crew, CEO: Growth will return when consumer confidence improves. We expect positive price mix in North America, but strategic investments and salary inflation will pressure margins. The timing of consumer recovery will determine fiscal '25 performance.
Q: What is your strategy for managing marketing spend given the softer industry outlook?
A: Debra Crew, CEO: We don't manage to a specific rate but focus on returns. We optimize spending based on performance and use tools like Catalyst to stretch our marketing dollars. We adjust spending according to the current environment while maintaining strategic investments.
Q: How do you view the competitive environment in tequila and whiskey, and is there a structural issue with Casamigos?
A: Debra Crew, CEO: The tequila category remains competitive, but super-premium plus is growing. Casamigos has room for growth, especially in on-premise and under-shared states. We are integrating it into our dedicated sales division to leverage Diageo's resources. In whiskey, we see normal competitive activity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
