Investors toasting double-digit sales and profit growth at Diageo found their good cheer soured this week by a sharp share price drop, as attention fell on stuttering growth in the US.

On the surface, there was plenty to celebrate from its half-year results on Thursday. The spirits giant posted net sales growth of 18.4% to £9.4bn in the six months to 31 December, up 9.4% on an organic basis and ahead of analyst estimates.

The vast majority of this growth was driven by pricing and mix, with high single-digit price increases and premiumisation accounting for 7.6 percentage points. However, the group also maintained organic volume growth of 1.8% despite pressures on consumer spending. This was spread across most categories, but primarily in scotch, tequila and beer.

In particular, consumer taste for premium-end spirits shows little sign of abating despite soaring inflation: its ‘premium-plus’ brands drove 65% of that organic net sales growth.

The strong top-line momentum translated into profits, despite an inevitable margin hit from cost inflation. Reported operating profit was up 15.2% to £3.2bn, negating a 92pt margin decline.

Organic operating profit margin did expand marginally, as price increases and productivity savings offset the impact of absolute cost inflation.

However, the shares sank 6.6% in morning trading to 3,430.5p – their lowest level since summer 2022.

The negative sentiment was driven by lower-than-expected sales in its key North America market, as organic growth slowed to just 3% amid a 4% drop in sales volumes and a significant hit to the division’s organic margin.

Additionally, a cautious outlook predicted net sales growth would continue to “normalise” from previously elevated double-digit levels in developed markets, while a “challenging” inflationary environment would push growth in marketing investment above growth in sales.

“North America is such an important and high-margin part of Diageo that even though the group as a whole beat organic sales estimates comfortably, the US miss is the most significant element of these results,” said broker RBC Capital.

Jefferies, however, suggested the stock was being oversold on the US numbers: “We would take advantage of bumpiness in the share price to buy into a high quality staples name with structural growth and strong execution. As the US moderation becomes in the price, this overhang will be removed.”

Diageo shares have recovered strongly since dipping below 2,500p in the early months of the pandemic. However, that recovery has now stalled as the shares are now down by more than 5% year on year.

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