Diageo shares hit four-year low as CEO warns of troubles ahead

By Emma Rumney

LONDON (Reuters) - Diageo warned challenges could persist into next year after missing full-year profit expectations on Tuesday, sending shares in the world's top spirits maker down more than 9% to a four-year low.

The maker of Johnnie Walker whisky and Tanqueray gin has struggled to restore investor confidence after a build-up of unsold inventory in Mexico and Brazil caught the company by surprise in November, and prompted a profit warning.

Sales in the region fell 21.1% over the year to June 30 - a slightly deeper decline than Diageo had anticipated - dragging its group sales and profit just below analyst expectations, down 0.6% and 4.8% respectively.

Chief Executive Debra Crew said Diageo had taken steps to resolve problems in the region and beyond, which she was confident would ultimately restore growth.

However, she warned that factors that had hurt Diageo's performance, including low consumer confidence, could persist into next year. It was difficult to say when the company could return to its medium-term goal of annual sales growth of between 5% and 7%.

"It's really hard to call," she said.

RBC Capital analyst James Edwardes Jones said this was "not reassuring" given warnings from other consumer companies that U.S. consumer confidence is under pressure.

Campari's shares also fell over 7% on Tuesday as the Italian spirits group warned it faced headwinds this year.

TOO MANY NEGATIVES

It seems unlikely that Diageo will meet its sales target within the next two years, said Fintan Ryan, an analyst at stockbrokers Goodbody.

Aside from Guinness, most Diageo products including key categories like whiskey and tequila saw lower sales, he said, adding that the company did not predict any material change next year.

Some analysts and investors have called Diageo's medium-term sales guidance too ambitious, especially with sales down 3% in North America, its largest division.

Crew said Diageo had resolved problems with excess inventory in the United States, but consumers remained cautious.

The company's shares fell to their lowest since 2020 in early trade, and were 7.8% lower at 1009 GMT.

"They haven't regained confidence yet," said Moritz Kronenberger, a portfolio manager at Germany's Union Investment, a Diageo investor, adding that sticking to the medium-term sales target given recent performance was damaging to credibility.

"There are too many negative parts not turning positive," he said.

(Reporting by Emma Rumney; Editing by Bernadette Baum, Kirsten Donovan and Helen Popper)