Diageo Hits 35th 52-Week Low: It’s Time to Buy Despite Sales Decline

There were 190 52-week highs and 21 lows on the NYSE Tuesday. On the Nasdaq, 112 stocks hit 52-week highs, while 93 hit 52-week lows. 

Diageo (DEO) was one of 21 NYSE stocks hitting a 52-week low on Tuesday. It was the producer of alcoholic beverages’ 35th 52-week low of the past 12 months. 

Also on Tuesday, the company reported preliminary results for its fiscal year ended June 30 that showed overall revenue declined 1.4% over the past year, its first annual decline since 2020. 

While the results in 2024 weren’t great and 2025 doesn’t look much better, here’s why it’s time to buy Diageo stock. 

The Bottom Is Near

Diageo stock lost nearly 5% in Tuesday trading on the news. It is now Down nearly 13% for the year and 29% over the past 12 months. Worst still, it’s down 25% over the past years. Including dividends, it has an annualized total return of -3.03%. None of this is good if you’re a longtime shareholder. 

As I said in the introduction, Diageo reported preliminary results for fiscal 2024. While revenue was down to $20.3 billion, $900 million less than analyst estimates, it still managed to generate an annual operating profit of $5.95 billion, good for a 29% operating margin. Yes, the dollar value of its operating profit fell by nearly 5.8%, but it still made a boatload of money in the latest fiscal year. 

DEO hit an all-time high of $223.14 in early January of 2022. It is down 45% since this high. 

What’s really happened in the 2.5 years since?

Its revenues have increased by 24.3% from $16.33 billion in fiscal 2021 (June year-end) to $20.3 billion in 2024, while its EBIT profit has increased by 29.5% from $4.81 billion in 2021 to $6.23 billion in 2024. Meanwhile, its operating margin expanded 120 basis points in the past three years. 

The last time I checked, growth was good. 

So, the question is, how bad will 2025 be?

How Bad, Indeed?   

As the company reported, if not for the Latin America and Caribbean region (LAC), its organic net sales grew 1.8%, significantly better than its 0.6% overall decline would suggest. 

And, yes, even that must be tempered by the fact that any increases in net sales outside LAC were due to a 3.9 percentage point increase in prices, partly offset by a 2.1% decline in volume. 

However, as it also stated, excluding LAC, its operating profit in 2024 declined by just $2.0 million, so the sky is definitely not falling. 

Further, it held or gained market share in a majority of its markets, including the U.S.

“In fiscal 24 we made good progress against our strategic priorities. We ended fiscal 24 gaining or holding share in measured markets totalling over 75% of our net sales value, including in the US,” Diageo’s July 30 press release stated. 

In further positives, in 2024, it generated $700 million in annual productivity savings, leading to $2.6 billion in free cash flow, nearly 17% higher than in 2023. 

As its press release stated, “The consumer environment continues to be challenging, with conditions we saw towards the end of fiscal 24 persisting into fiscal 25.”

There’s no question people are spending less on discretionary items. Premium alcohol is such an item. That won’t last forever. However, realistically, it won’t get better until later in this calendar year and into 2025.

However, trading at one of its lowest points in the past decade, getting in ahead of the future resurgence will produce positive results for aggressive investors.

It’s bad but it’s not that bad. 

The Bottom Line on Diageo Stock

The biggest concern investors should have about Diageo is its LAC region. Between increased competition in the region to consumers trading down in their product selection, it has resulted in higher inventory levels, leading to lower revenues. Mexico has also been a tough market. The region will continue to face margin pressures. 

Beyond LAC, two real positives stand out.

First, as Quilter Cheviot head of equity research, Chris Beckett, stated about the results, “Diageo’s recent results are disappointing but not catastrophic. Revenue has remained fairly stable, with a slight decline of 1% both overall and in the second half,” CNBC reported Beckett’s comments.  

Secondly, its Guinness beer brand had a very strong quarter, contributing most of Diageo’s 18% net beer sales growth in Europe in the quarter. As for the North American market, there was a bright point: Bulleit Bourbon net sales increased by 12% in the quarter, holding market share in a very competitive environment. 

Will DEO stock ever return to $223? I can’t say. What I can say is that Diageo remains one of the finest alcohol beverage producers in the world. It’s worth owning for the long haul.

One unusually active option from yesterday’s trading was the Sept. 20 $115 put. With a bid price of $1, if you sold the put, you’d generate an annualized return of 5.7% if the share price did not fall to $115 within 51 days. 

I don’t think it will, but if it does, you'll have an even better entry point into owning DEO.

Cheers. 

 

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On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.