The profit of Diageo, a significant company within the FTSE 100, has experienced a decline, despite notable growth in their Guinness division.

In a challenging economic climate, Diageo, the world-renowned spirits and beer company, has seen a significant drop in its share price since Debra Crew took over as CEO. The company's operating profit for 2022 fell 27.8% year on year to $4.33bn (£3.25bn), according to recent reports.

Analysts had predicted a higher operating profit for 2022, with a projected figure of $5.65bn (£4.25bn). The bull case around Diageo, based on the premise that younger people were drinking less but upping the quality, has been affected by higher inflation, causing consumers to trade down as well as slow down.

The operating profit margin of Diageo dropped 8.19% to 21.4%, due to "exceptional impairment and restructuring costs". In response, the company has increased its cost-cutting goals to $625m.

However, not all news is negative. Diageo's standout brands, including Don Julio, Guinness, and Johnnie Walker, have gained market share in the last year. Guinness's popularity has surged among Gen Z on social media, contributing to increased demand for the drink.

Nik Jhangiani, interim chief executive of Diageo, acknowledged that there is more work to be done across the company's portfolio and brands. He emphasised the need to drive meaningful growth opportunities and sharpen the company's strategy to accelerate growth.

Looking ahead, Diageo expects organic operating profit growth to be in the mid-single-digits next year, including the impact of tariffs. The company also expects next year's organic sales growth to be flat.

Rumours have been circulating about Diageo spinning off Guinness as part of a cost-cutting plan, but no hard evidence for the decision has been found. The successor to Debra Crew as CEO of Diageo, announced in July, is Javier Ferrán.

Despite the challenges faced by Diageo, its net sales for the year fell only 0.1% to $20.24bn (£15.24bn), slightly below analysts' expectations of 1.4%. Guinness has shown double-digit growth in recent years, offering a glimmer of hope for the future.

Robinhood UK lead analyst Dan Lane stated that the struggle of Diageo's profits and margins, even at the height of Guinness's popularity, has sounded alarm bells. The company will need to navigate these challenging times carefully to ensure a strong future.

The profit of Diageo, a significant company within the FTSE 100, has experienced a decline, despite notable growth in their Guinness division.