Guinness maker Diageo cuts outlook on weak US, China demand

Diageo, the maker of Guinness stout and Smirnoff vodka, cut its sales outlook and slashed shareholder payouts Wednesday, as its new chief executive seeks to revive the struggling drinks group.

The British company said it expects full-year net sales to fall two to three percent in its fiscal year ending on June 30, citing weakness in the United States and China.

"Only several weeks in, I can already see significant opportunities for Diageo to act more decisively to enhance its competitiveness," chief executive Dave Lewis said in an earnings statement

Lewis, a former chief executive of British supermarket giant Tesco who has a reputation for cost-cutting, took the helm in January following the sudden departure of Debra Crew. 

Net sales fell four percent to $10.5 billion in the six months to December, compared with one year earlier, Diageo said. 

Net profit, meanwhile, rose 3.1 percent to almost $2 billion in its first half.

In an earnings presentation, Lewis said pressure on customer wallets was "by far and away" the biggest economic challenge for the company.

The group said it is facing mounting competition from cheaper brands in the United States, particularly in tequila, as consumers confront cost-of-living pressures.

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Diageo announced it is more than halving its first-half dividend, sending shares down around eight percent on London's benchmark FTSE 100 index, which was trading higher overall. 

The company, which makes Johnnie Walker whisky, Baileys liqueur and Don Julio tequila, said it is ramping up its cost-savings programme.

Diageo has sought to reduce its debt amid a tough trading environment and after announcing in May that it faces a financial hit from US President Donald Trump's tariffs onslaught.

At the end of last year, the company gave a profit warning as it cautioned over weaker consumer demand in China and the United States.

"The business is not doing as well in the once lucrative North American market and China is not lining its pockets with riches either," said Dan Coatsworth, head of markets at AJ Bell. 

"There is no point trying to dress up the six-month figures. These are awful results, and the repair job is massive," he added.

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