Diageo shares jump on cost cuts as North America sales plunge 9 per cent
The London-based owner of Guinness and Johnnie Walker vows $850 million in savings after a 9.1 per cent sales drop across the U.S. and Canada.
Diageo shares surged up to eight per cent Thursday after the London-based drinks giant pledged up to $850 million in cost savings, even as it reported a 9.1 per cent sales drop across North America.
The FTSE 100 owner of Guinness, Johnnie Walker and Tanqueray reported a three per cent dip in sales to $19.6 billion in the year to end June, with profit tumbling by more than a fifth to just under $2 billion. Sales grew 5.7 per cent in Europe and 16.9 per cent in Latin America, though this was offset by an 8.3 per cent slide in Asia and the 9.1 per cent plunge in North America, a market that includes Canada where Diageo operates a significant whisky and spirits business.
Chief executive Dave Lewis, known as 'Drastic Dave' for his turnaround efforts at previous firms including Tesco, vowed to build "a more agile and competitive operating framework" focusing on "customer, customer, customer." Lewis, who joined Diageo at the start of the year, appeared to soften the 'premiumisation' strategy of his predecessor after customers traded down from pricey spirits to cheaper alternatives, dealing Diageo a financial blow.
"We remain a business with a very strong premiumisation agenda, but by activating our wider portfolio, we will be able to serve more consumers, across a variety of occasions," Lewis said. The company slashed its dividend from 63 to 30 cents per share, and took a $1.5 billion impairment knock, largely from the writedown of its business in Turkey.
"There is hard work ahead, particularly in North America, where improving performance is a clear priority, but we are confident we can deliver without taking a step back in operating profit," Lewis said. Chris Beauchamp, Chief Market Analyst at investing and trading platform IG, said "desperate times call for desperate measures" and Lewis was delivering on his mandate.
"The slashing of the dividend is the kind of thing only incoming chief executives with a mandate to save the business are allowed to do without cratering the share price, the market was prepared for it anyway after the half year was given similar treatment to today's full-year figure," Beauchamp said. "Now comes the hard part, convincing and then showing investors that the turnaround plan is going to pay off."