LONDON/MEXICO CITY (Reuters) - Diageo ( DEO ) is set to post its first yearly sales decline since 2020 next week, when it needs to convince investors that plans to turn around its North American and Latin American businesses are showing progress.

The world's top spirits maker has come under pressure following a profit warning last November in Latin America and the Caribbean which shook investor confidence in its management. It has also lost market share in the U.S.

As a result, analysts on average expect Diageo ( DEO ) to post a 0.2% decline in net sales for the year to June 30 when it reports results on Tuesday. The company, which makes Johnnie Walker whisky and Tanqueray gin, made net sales of 17.1 billion pounds ($22 billion) the previous year.

Diageo ( DEO ) already made almost 11 billion pounds worth of sales in the first half, meaning it would only need another 6 billion pounds or so to achieve a flat result. Its second-half sales stood at 7.7 billion pounds last year.

Some analysts, like Fintan Ryan at Goodbody stockbrokers, have warned the outcome could be worse than consensus forecasts.

Persistent problems in the U.S., in addition to its troubles in Latin America, "could see this full-year delivery lower", he said in a note.

Some investors are also pessimistic.

"We're keeping our hopes quite low," said Fred Mahon, fund manager at Diageo ( DEO ) investor Church House. Like Ryan, he cited weak luxury goods sales.

Diageo ( DEO ) declined to comment.

Recent results from peers like Remy Cointreau and LVMH's drinks unit Moet Hennessy, in which Diageo ( DEO ) owns a stake, illustrate the problems facing spirits makers.

Demand has slumped following a post-pandemic boom in sales, where cash-flush consumers splashed out on expensive booze. Stock ordered during the good times is now gathering dust, driving sales declines across the sector.

SHARE LOSSES

Investors want to see Diageo ( DEO ) turn around market share losses at its North American unit, which spans its largest market, the U.S., and contributes 40% of sales.

Diageo's ( DEO ) U.S. market share has suffered because spirits in which it has traditionally been strong, like whisky and gin, are less popular than in the past.

In the market for tequila, which has enjoyed fast-growing popularity over the last few years, pricier labels like Diageo's ( DEO ) Casamigos have recently lost share to cheaper brands.

Nielsen data, provided to Reuters by an industry source, shows Diageo ( DEO ) has lost U.S. market share in four of the six months to June.

MEXICANS PREFER MEZCAL

Diageo ( DEO ) has also warned sales are likely to fall by another 10-20% in Latin America and the Caribbean. Brazil and Mexico have driven declines so far.

A build-up of unsold stock among wholesalers and retailers in Mexico caught Diageo ( DEO ) by surprise in the first half.

Inventories at Mexican wholesalers have "not improved at all", one specialist spirits distributor told Reuters, asking not to be named.

Diageo brands were on aggressive promotions, the distributor said, with lots of three for two deals or discounts of up to 50% to shift stock.

Overall wine and liquor sales from wholesalers were down 6.2% in Mexico in the 12 months to May, with the declines led by champagne and whiskey, according to Mexican market intelligence firm ISCAM.

Diageo's ( DEO ) Johnnie Walker is one of the company's key products in the Latin America region.

But the cost of international spirits is too high for many Mexicans today, said Benjamin Padron Novoa, a co-founder of prominent Mexican bar Licoreria Limantour.

Those that could still afford to splash out on expensive booze preferred to spend their money on local drinks like mezcal, he continued, adding that while this was even pricier than whiskey it at least had Mexican roots.

They would rather pay for something with Mexican heritage and made by small, family-owned distillers than give "1,000 pesos to an international company", he said.

($1 = 0.7769 pounds)