Diageo, the big-league player behind iconic brands like Smirnoff, Johnnie Walker whisky, and Casamigos tequila, might be feeling the need for a strong drink from their own stash right about now. The spirits giant just served up its worst quarterly performance since the pandemic blindsided the world and sent markets into a tailspin. It's a tough shot to swallow, especially for a company that’s been a steady performer in the alcohol game. 

Net sales for Diageo took a bit of a stumble, slipping down by 0.6% for the year ending June 30th, marking their first annual decline since 2020. Diageo’s stock didn't just take a hit; it crashed harder than a college kid’s solo cup at a tailgate party, plunging 8% on Tuesday. This nosedive brought the stock to its lowest point in four years, a level that hasn’t been seen since before we all became amateur mixologists during lockdown.

(Spurce: Sherwood)

So, what’s tripping up Diageo? The usual suspects: high inflation and rising interest rates thanks to ole J Powell. Apparently when people start feeling the pinch, they tighten their belts, and even their go to bottle of booze can feel like a splurge. 

Diageo’s CEO, Debra Ann Crew, is trying to stay optimistic, saying, "When the consumer environment improves, we will return to growth." She’s got the “glass half full” attitude, like a motivational quote on your fridge.

I do find it interesting though that alcohol has usually been pretty recession-proof. When times are tough, people often reach for a bottle, but recent trends suggest that many folks are toasting less often. 

(Source: Gallup)

While the booze market isn't completely drying up, people are shifting their tastes. Beer is falling out of favor, while spirits and trendy ready-to-drink cocktails are becoming the life of the party. Diageo's brands like Guinness and their canned cocktails, such as Crown Royal whisky cola, are doing well. However, Casamigos tequila isn't faring as well; it's struggling a bit.

Here’s another surprising twist. Diageo’s non-alcoholic Guinness is bubbling up in popularity. Yes, you read that right. As more consumers go the mocktail route, Diageo is pouring more effort into alcohol free options.

You see, Diageo's regional performance was a mixed bag with some highs and serious lows. In North America, sales slipped by 2.5%, while Latin America saw a huge 21.2% drop. But not all is lost– Europe, Africa, and Asia helped keep the company afloat. Still, the total volume of alcohol sold is the lowest it's been since 2014, excluding the chaos of 2020. Investors are feeling the impact, as a company known for its stability is now showing unexpected weaknesses.

Meanwhile, Diageo’s competitors aren’t all drowning. Constellation Brands, the folks behind Modelo beer and Svedka vodka, reported impressive sales and profit growth—6% and 23%, respectively. Modelo, now the reigning beer champ in the US, saw sales grow by 8%. The big challenge for Debra Crew, Diageo's chief executive, is to convince investors that these are just short-term bumps in the road.

(Source: Courthouse News)

Here’s the thing! Diageo brands have seen it all: multiple economic crises, two world wars, and ever-changing booze regulations. Diageo itself is a youthful 26 years old, but it's brands have been raising glasses for centuries. Diageo is the new kid on the block, but with a crew of wise, old masters who’ve seen it all and lived to tell.

What’s important here is that Diageo admits it’s trailing behind but claims it’s “gaining momentum in a cautionary consumer environment.” Here’s hoping they find their balance soon, because right now, it seems like Diageo could use a little less sobering news. 

Stocks.News holds positions in Diageo and Constellations.