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By Emma Rumney
LONDON (Reuters) - Diageo's new finance chief Nik Jhangiani is under pressure to row back on the spirits giant's medium-term sales goals next week, which some investors say may no longer be realistic given sliding sales across the sector.
The world's top spirits maker reports interim results on Feb. 4, Jhangiani's first since taking the role in September. He will have to either reaffirm the sales targets in place since 2021 or admit that aiming for between 5% and 7% annual sales growth may no longer be appropriate.
"We believe that 7% is hardly achievable in the medium to long-term," said Kai Lehmann, a senior analyst at Flossbach von Storch, a top 20 investor in Diageo according to LSEG data.
New CEO Debra Crew took over in June 2023, months before a build-up of stock in Latin America prompted a profit warning and rattled confidence in Diageo's management. Sales have since continued to spiral across the sector as high inflation and interest rates force consumers to cut spending.
Crew said in July it was hard to say when current challenges will recede and the company will return to 5% to 7% sales growth.
Its organic sales declined 0.6% last year.
Lehmann told Reuters he has raised the issue with Crew and plans to do so again with finance chief Jhangiani, but said the target does not necessarily need to be changed if the company is convinced it is achievable.
Cutting the target set under previous CEO Ivan Menezes risks putting further downward pressure on the shares, which have lost 20% since the profit warning. It would also acknowledge that, even if economic challenges abate, the sector cannot be as ambitious as in the recent past.
Diageo declined to comment during the quiet period ahead of its results.
TIME FOR A RESET?
When Diageo set its growth target, the drinks industry was enjoying a COVID-19 boom as consumers were stuck at home treating themselves to pricey bottles of liquor. Diageo's organic net sales grew 16% in 2021, versus between 2.8% and 6.1% from 2016 to 2019.
Four investors, including Lehmann and two others among the top 40 shareholders, said they now doubt at least the upper end of Diageo's goal is realistic given current trends.
One of the top 40 investors, who asked not to be named in order to speak freely, thought Diageo should lower the target growth rate just slightly, to 4%-6%.
Even then, Diageo risks being out of step with peers like Pernod Ricard, still aiming for up to 7% growth, and Remy Cointreau, expecting "high single digit" annual sales growth from 2025-26 despite analyst scepticism.