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Will LAC Issues & Inflation Hurt Diageo's (DEO) FY24 Earnings?
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Diageo Plc (DEO - Free Report) is scheduled to release preliminary results for fiscal 2024 on Jul 30. The company has been witnessing inflation in commodity costs, mainly related to increased prices for glass, paper and metal as well as higher energy and transportation costs. Also, elevated inventory levels in Latin America and the Caribbean (“LAC”) have been denting performance.
The alcoholic beverage company, which reports on a half-yearly basis, posted top and bottom-line declines, lower organic operating profit and higher finance charges in the first half of fiscal 2024. Organic net sales declined year over year due to a dip in the LAC segment.
DEO is expected to register declines in the top and bottom lines when it reports fiscal 2024 numbers. The Zacks Consensus Estimate for quarterly earnings has moved down 0.4% in the past seven days to $7.49 per share.
The consensus estimate indicates a decline of 8.2% from the year-ago quarter’s reported number. The consensus estimate for Diageo’s quarterly revenues is pegged at $20.8 billion, which indicates a fall of 3.1% from the figure reported in the prior-year quarter.
DEO is anticipated to have witnessed continued headwinds from the weak performance of the LAC segment, which contributes 10% to net sales, in the second half of fiscal 2024. The fast-changing consumer sentiment and high inventory levels have been significantly impacting the total business performance in the LAC region, identified at the end of fiscal 2023.
The LAC region has been experiencing pressures related to excess inventory levels at its direct-to-customer channels. Despite corrective measures, the elevated inventory levels impacted the LAC segment’s performance in the first half of fiscal 2024. Lower consumption and reduced consumer demand, due to the macroeconomic pressures in the region, were the main culprits. While the company has managed to lower inventories with direct customers to some extent, inventory levels continue to be high in this channel.
On its last earnings call, Diageo anticipated the macroeconomic pressures in LAC to persist through the second half, thereby impacting inventory levels. Consequently, DEO expected organic net sales in LAC to decline 10-20% year over year in the second half of fiscal 2024. However, the company expects to finish fiscal 2024 with more appropriate inventory levels for the current consumer environment.
Additionally, the Zacks Rank #4 (Sell) company has been facing significant cost pressure, mainly related to increased glass, paper, metal and transportation costs. This, along with the pressures in the LAC region, is expected to have marred its margins in fiscal 2024.
On its last earnings call, DEO expected headwinds from continued inflation and relatively low operating leverage as it reduces LAC inventory, to persist in fiscal 2024. Additionally, the company is likely to continue focusing on delivering strong productivity and leveraging revenue growth management capabilities while remaining invested in marketing.
Although the company expected a challenging operating environment for fiscal 2024, it predicted a gradual improvement in year-over-year comparisons in the second half . It expected the organic net sales growth rate in the second half to steadily improve compared with the growth rate in the first half. Additionally, DEO expected improvements in organic operating profit growth at the group level compared with the first half.
Diageo noted that it is on track to deliver on its medium-term guidance for fiscal 2023-2025, wherein it targets organic sales growth of 5-7% and organic operating profit growth of 6-9%.
In fiscal 2024, Diageo expects to invest strongly in marketing and innovation and leverage its revenue growth management capabilities, including strategic pricing actions. In North America, the company expects organic net sales to improve gradually in the second half of fiscal 2024. In Europe, Asia Pacific and Africa, it anticipates continued net sales growth in the second half of fiscal 2024.
Key Picks
Here are some companies you may want to consider this earnings season.
Procter & Gamble (PG - Free Report) has an Earnings ESP of +0.76% and currently carries a Zacks Rank #3 (Hold). The company is likely to register top-line growth when it reports second-quarter 2024 earnings. The Zacks Consensus Estimate for PG’s quarterly revenues is pegged at $20.8 billion, which indicates 1% growth from the figure reported in the prior-year quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus mark for Procter & Gamble’s quarterly earnings has been unchanged in the past 30 days at $1.37 per share. The consensus estimate for PG’s second-quarter earnings implies flat results compared with the year-ago quarter.
Coty (COTY - Free Report) currently has an Earnings ESP of +22.73% and a Zacks Rank #3. The company is likely to register increases in the top and bottom lines when it reports second-quarter 2024 numbers. The consensus mark for COTY’s quarterly earnings has been unchanged in the past 30 days at 5 cents per share. The consensus estimate indicates growth of 400% from the year-ago quarter’s reported number.
The Zacks Consensus Estimate for COTY’s quarterly revenues is pegged at $1.4 billion, which implies a rise of 1.9% from the figure reported in the prior-year quarter.
Colgate-Palmolive (CL - Free Report) currently has an Earnings ESP of +0.45% and a Zacks Rank #3. The company is likely to register increases in the top and bottom lines when it reports second-quarter 2024 results. The consensus mark for CL’s quarterly revenues is pegged at $5 billion, which indicates a rise of 4.1% from the figure reported in the prior-year quarter.
The Zacks Consensus Estimate for Colgate’s second-quarter earnings has been unchanged in the past 30 days at 87 cents per share. The consensus estimate for CL indicates 13% growth from the year-ago quarter.
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Will LAC Issues & Inflation Hurt Diageo's (DEO) FY24 Earnings?
Diageo Plc (DEO - Free Report) is scheduled to release preliminary results for fiscal 2024 on Jul 30. The company has been witnessing inflation in commodity costs, mainly related to increased prices for glass, paper and metal as well as higher energy and transportation costs. Also, elevated inventory levels in Latin America and the Caribbean (“LAC”) have been denting performance.
The alcoholic beverage company, which reports on a half-yearly basis, posted top and bottom-line declines, lower organic operating profit and higher finance charges in the first half of fiscal 2024. Organic net sales declined year over year due to a dip in the LAC segment.
DEO is expected to register declines in the top and bottom lines when it reports fiscal 2024 numbers. The Zacks Consensus Estimate for quarterly earnings has moved down 0.4% in the past seven days to $7.49 per share.
The consensus estimate indicates a decline of 8.2% from the year-ago quarter’s reported number. The consensus estimate for Diageo’s quarterly revenues is pegged at $20.8 billion, which indicates a fall of 3.1% from the figure reported in the prior-year quarter.
Diageo plc Price, Consensus and EPS Surprise
Diageo plc price-consensus-eps-surprise-chart | Diageo plc Quote
Key Factors to Note
DEO is anticipated to have witnessed continued headwinds from the weak performance of the LAC segment, which contributes 10% to net sales, in the second half of fiscal 2024. The fast-changing consumer sentiment and high inventory levels have been significantly impacting the total business performance in the LAC region, identified at the end of fiscal 2023.
The LAC region has been experiencing pressures related to excess inventory levels at its direct-to-customer channels. Despite corrective measures, the elevated inventory levels impacted the LAC segment’s performance in the first half of fiscal 2024. Lower consumption and reduced consumer demand, due to the macroeconomic pressures in the region, were the main culprits. While the company has managed to lower inventories with direct customers to some extent, inventory levels continue to be high in this channel.
On its last earnings call, Diageo anticipated the macroeconomic pressures in LAC to persist through the second half, thereby impacting inventory levels. Consequently, DEO expected organic net sales in LAC to decline 10-20% year over year in the second half of fiscal 2024. However, the company expects to finish fiscal 2024 with more appropriate inventory levels for the current consumer environment.
Additionally, the Zacks Rank #4 (Sell) company has been facing significant cost pressure, mainly related to increased glass, paper, metal and transportation costs. This, along with the pressures in the LAC region, is expected to have marred its margins in fiscal 2024.
On its last earnings call, DEO expected headwinds from continued inflation and relatively low operating leverage as it reduces LAC inventory, to persist in fiscal 2024. Additionally, the company is likely to continue focusing on delivering strong productivity and leveraging revenue growth management capabilities while remaining invested in marketing.
Although the company expected a challenging operating environment for fiscal 2024, it predicted a gradual improvement in year-over-year comparisons in the second half . It expected the organic net sales growth rate in the second half to steadily improve compared with the growth rate in the first half. Additionally, DEO expected improvements in organic operating profit growth at the group level compared with the first half.
Diageo noted that it is on track to deliver on its medium-term guidance for fiscal 2023-2025, wherein it targets organic sales growth of 5-7% and organic operating profit growth of 6-9%.
In fiscal 2024, Diageo expects to invest strongly in marketing and innovation and leverage its revenue growth management capabilities, including strategic pricing actions. In North America, the company expects organic net sales to improve gradually in the second half of fiscal 2024. In Europe, Asia Pacific and Africa, it anticipates continued net sales growth in the second half of fiscal 2024.
Key Picks
Here are some companies you may want to consider this earnings season.
Procter & Gamble (PG - Free Report) has an Earnings ESP of +0.76% and currently carries a Zacks Rank #3 (Hold). The company is likely to register top-line growth when it reports second-quarter 2024 earnings. The Zacks Consensus Estimate for PG’s quarterly revenues is pegged at $20.8 billion, which indicates 1% growth from the figure reported in the prior-year quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus mark for Procter & Gamble’s quarterly earnings has been unchanged in the past 30 days at $1.37 per share. The consensus estimate for PG’s second-quarter earnings implies flat results compared with the year-ago quarter.
Coty (COTY - Free Report) currently has an Earnings ESP of +22.73% and a Zacks Rank #3. The company is likely to register increases in the top and bottom lines when it reports second-quarter 2024 numbers. The consensus mark for COTY’s quarterly earnings has been unchanged in the past 30 days at 5 cents per share. The consensus estimate indicates growth of 400% from the year-ago quarter’s reported number.
The Zacks Consensus Estimate for COTY’s quarterly revenues is pegged at $1.4 billion, which implies a rise of 1.9% from the figure reported in the prior-year quarter.
Colgate-Palmolive (CL - Free Report) currently has an Earnings ESP of +0.45% and a Zacks Rank #3. The company is likely to register increases in the top and bottom lines when it reports second-quarter 2024 results. The consensus mark for CL’s quarterly revenues is pegged at $5 billion, which indicates a rise of 4.1% from the figure reported in the prior-year quarter.
The Zacks Consensus Estimate for Colgate’s second-quarter earnings has been unchanged in the past 30 days at 87 cents per share. The consensus estimate for CL indicates 13% growth from the year-ago quarter.
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