Diageo (DGE.L) withdrew its ambitious sales growth target on Tuesday, in an acknowledgement a prolonged downturn in demand and uncertainty over U.S. President Donald Trump's tariffs require the spirits sector to make big adjustments.
While investors welcomed the removal of targets they regarded as increasingly unrealistic, shares in the world's largest spirits maker dropped 4% in early trade on Tuesday. They hit their lowest since 2020, making the company one of the biggest losers on London's FTSE 100.
The maker of Johnnie Walker whisky and Don Julio tequila said it had withdrawn its guidance for medium-term organic net sales growth of between 5% and 7% because macroeconomic and geopolitical uncertainty were slowing recovery.
The threat of U.S. tariffs on Mexico and Canada from March added "further complexity" around forward guidance and threatened $200 million worth of operating profit in the second half, executives said.
Nik Jhangiani, Diageo's new finance chief, said work was underway that would leave the company "better placed when the market recovers".
Jhangiani joined in September and was tasked with refreshing the narrative and addressing investor concerns, including around the sales target.
The goal was set by previous CEO Ivan Menezes in 2021 when the industry enjoyed strong growth as pandemic lockdowns led drinkers to spend their spare cash on pricey liquor.
Since then, consumers' savings have dwindled under the impact of high interest rates and inflation.
Current CEO Debra Crew took the job in June 2023, months before a November profit warning that shook confidence in Diageo's management.
"We welcome the removal of the medium-term guidance ... In our view this resulted in unrealistic expectations on the part of investors and sub-optimal management decisions designed to support an unfeasible growth aspiration," analysts at RBC Capital Markets said in a note.
Some investors also worry societal shifts, such as a trend towards avoiding alcohol because of health concerns and the possibility weight-loss drugs suppress the desire to drink, threaten growth long term.
Moritz Kronenberger, a portfolio manager at Germany's Union Investment, a Diageo shareholder, said the lack of new growth guidelines added to uncertainty around the sector's future growth prospects.
"I can see the pressure is easing," he said of the industry's challenges, but that it was unclear when the U.S. market would recover, especially as tariffs loom.
