When a company cuts its expected profit forecasts, the typical response in the market is a sharp share price drop. Diageo (DGE) has proved to be an exception. The spirits company said it expects recent foreign exchange volatility in emerging markets to wipe £175m off net sales and £45m off operating profit this fiscal year. On the days this was announced, the shares initially fell slightly but ended the day up 2 per cent.
The muted reaction may be because investors just aren’t that fussed by currency movements. The cuts to forecasts are also marginal in the context of Diageo’s scale. Last financial year the company reported £12.2bn in net sales, with £3.7bn of operating profit. Chief executive Ivan Menezes also still expects organic operating margin expansion of 175 basis points to be achieved by June 2019. Diageo also announced a £2bn share buyback programme at its full-year results in July.
