Diageo PLC on Friday said it expects sales in Latin America and the Caribbean to act as a drag on growth, with the region hit by low consumption due to macroeconomic pressures.

Diageo is a London-based brewer and distiller with brands including Guinness, Baileys, Tanqueray, Johnnie Walker, Smirnoff and Captain Morgan.

Diageo shares fell 9.8% to 2,926.00 pence each on Friday morning in London.

The company had been expecting to see a gradual improvement in organic net sales growth over its first half.

However, while momentum continues in four of its five regions, Diageo warned that growth in the first half of financial 2024 will be slower than the second half of financial 2023. Its financial years end on June 30.

Sales in the LAC market are nearly 11% of its net sales value, and are expected to fall by 20% year-on-year on an organic basis over the first half.

‘Macroeconomic pressures in the region are resulting in lower consumption and consumer downtrading. These impacts are slowing down progress in reducing channel inventory to appropriate levels for the current environment,’ it explained.

Meanwhile, in other regions, it expects to continue to invest in additional advertising and promotion ahead of net sales. ‘We expect that there will be continued, albeit moderating, cost inflation, which will be partially offset by pricing actions,’ Diageo said.

Consequently, organic operating profit growth for the first half of its financial year is anticipated to decline from the prior year. In the first half of financial 2023, it had climbed 9.7%. In January, it had guided for organic operating profit growth between 6% and 9% between financial 2023 and financial 2025.

Diageo expects to see a ‘gradual’ improvement in organic net sales and operating profit growth in the second half of financial 2024 compared to the first half.

In the medium term, the company is confident in its performance. While it anticipates operating environment challenges to persist, it hailed the strength of its portfolio, adding that its ‘deep consumer insights’ will help sustainable long-term growth and generate value for shareholders.

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