(Bloomberg) -- British fund manager Terry Smith has sold his stake in Diageo Plc, citing concerns about the management of the drinks company and its vulnerability to soaring demand for weight-loss drugs.
The veteran investor said that the maker of Guinness, and its rivals, are all in the early stages of being negatively impacted by GLP-1 drugs, such as Novo Nordisk A/S’s Ozempic and Wegovy. There’s growing evidence that these medications can cut alcohol cravings.
“It seems likely that the drugs will eventually be used to treat alcoholism, such is their effect on consumption,” Smith said in his annual letter to shareholders, explaining his decision to sell the stock.
Diageo shares have fallen almost 8% over the last year but traded slightly higher on Thursday.
Smith also took aim at London-listed Diageo’s management team led by Chief Executive Officer Debra Crew, who has been in charge since June 2023. He said a “lack of information” about problems in Diageo’s Latin American business was concerning.
In November 2023, Diageo issued a profit warning due to a collapse in demand in the region, which left piles of unsold booze. The fallout led to Diageo’s first first annual sales decline since the pandemic.
Diageo declined to comment.
Smith regularly uses his annual letter to rebuke consumer giants. A year ago, Smith sold Estée Lauder stock alongside a scathing assessment of management’s mishandling of China’s reopening after Covid lockdowns. The beauty company has lost half of its value over the last year and replaced its CEO.
Unilever Plc was also ridiculed by Smith who said the Anglo-Dutch consumer goods company had “lost the plot” and was obsessed with publicly displaying sustainability credentials at the expense of focusing on the business. The maker of Hellmann’s mayonnaise has since watered down some of its sustainability targets to focus on profit.
Smith hasn’t given up on the drinks sector entirely. Despite the meteoric rise of weight-loss drugs in the US, Diageo’s biggest market, Smith’s holding onto shares of US drinks company Brown Forman. While the maker of Jack Daniels suffered from the recent fall in consumption, it will likely benefit from longer-term thinking because it’s controlled by the Brown family, according to Smith.
“It is a company which survived Prohibition so we hope there is literally something in the DNA to help with these adverse circumstances,” he said in the letter.
(Updates with Diageo shares in fourth paragraph.)
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