By Emma Rumney
LONDON, February 7 (Reuters) – Diageo’s DGE.L an attempt to reassure investors about its strategy in Latin America has boosted confidence among some that the world’s top film maker can revive its performance after profit warningbut doubts remain for others.
Investors watched closely as the maker of Tanqueray gin and Johnnie Walker whiskey reported its first half. result last week after a November warning shook confidence in the company and its management led by new Chief Executive Debra Crew.
Diageo’s warning was prompted by a sharp decline in sales in Latin America as consumers switched to cheaper booze, leaving the company with a backlog of unsold stock that it admitted only became apparent at a relatively late stage.
As the latest earnings were released, three investors told Reuters that the measures Diageo is putting in place to ensure it is not caught in the same trap again are welcome.
“The sky is a bit clearer and there is a bit more sunshine,” said Johannes Hesche, a portfolio manager at Diageo investor Acatis, adding that the global economic environment is also more likely to improve than worsen.
It is also encouraging key distributors to allow independent stock counts at their major customers, which Diageo said will provide information on 200-300 more business customers in its supply chain.
Diageo shares have gained more than 3% since its half-year results, building on an earlier boost from Remy Cointreau. RCOP.PA third quarter sales, which elevated feeling about the prospects for spirits in the United States and China.
While they are still a bit ahead of key rivals such as Pernod Ricard PERP. PAThey remain about 9% lower than before the profit warning and follow a broader index of drinks industry peers.
GOOD RETURN
Hesche said that while he felt reassured that they were taking the right steps to prevent mistakes from being repeated, he was still not entirely confident in Diageo’s management.
Diageo declined to comment on a Sky News report last week that it had begun looking for a new chairman to replace Javier Ferran, whose current term ends in 2025.
None of the shareholders Reuters spoke to since the profit warning wanted to see any management changes as a result, although three said they still expected Crew to prove himself at the helm.
Crew was in March last year as the successor to Ivan Menezes, under whose leadership Diageo’s share price doubled, but ended up taking over earlier than planned after the 63-year-old. died shortly before his retirement.
Concerns about Diageo have certainly eased, said Nigel Yates, a portfolio manager at AXA Investment Managers, pointing to the fact that when Latin America was excluded, the company grew sales.
Governance in its largest region, North America, was better than expected, he added, and Diageo’s valuation meant investors could still make a good return even if the company grows more slowly than it hopes in the medium term.
Diageo currently trades at almost 19 times earnings, compared to almost 24 times for Remy and almost 17 times for Pernod.
Diageo expects to deliver improvement in organic net sales and organic operating profit growth in the second half of the year, despite economic volatility, a spokesman said, adding that Diageo has an experienced management team.
However, some investors are skeptical of the company’s ability to drive growth.
Diageo appeared to have missed an opportunity to convert drinkers in Latin America to spirits from beer for good, said Moritz Kronenberger, a portfolio manager at German Union Investment, another shareholder.
Diageo should benefit from a gradually improving US economy and easier comparative numbers in its previous results, said Christian Diebitsch, a fund manager at Diageo investor Heptagon Capital.
Those factors are more likely to overturn its performance than “smart management decisions,” he added.
Diageo’s stock performance relative to peers
The 12-month forward PE ratios of Spirit giants
(Reporting by Emma Rumney; Editing by Matt Scuffham and Kylie MacLellan)
((Emma.Rumney@thomsonreuters.com; +447391409253;))
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