Shares in Diageo (DGE) sank 5.5% to £17.70 after the world’s biggest spirits company cut the first half-dividend and lowered its full-year sales and profit outlook.
| Share price: £17.70 (-5.5%) | PE: 16x |
| Market cap: £41.7bn | Yield: 4% |
Grappling with a $21.7 billion net debt pile, the Guinness-to-Johnnie Walker maker’s H1 sales disappointed the market amid weaker demand in China and North America.
Mixed performance
Net sales declined by 4% to $10.5 billion and organic sales slipped 2.8% lower in what new CEO Dave Lewis dubbed a ‘mixed’ performance.
Diageo said ‘strong’ organic sales growth in Europe, Latin America and Caribbean (LAC) and Africa was ‘more than offset by softer performance in North America given pressure on disposable income impacting US Spirits’.
The beverages behemoth also bemoaned the ‘adverse impact of Chinese white spirits in Asia Pacific’. H1 operating profits were down due to an adverse sales mix and tariff costs.
On the positive side of the ledger, Scotch saw a return to growth led by Johnnie Walker, Buchanan’s and Black & White.
And in beer, Guinness delivered organic growth of 10.9%, with growth in all regions apart from Asia Pacific.
Outlook lowered
The Captain Morgan-to-Ketel One brand owner now expects Fy26 organic sales to be down 2% to 3% given further weakness in the US.
Diageo guided for organic operating profit to be flat to up low single digits, but reiterated its free cash flow guidance.
Investors were disappointed as Diageo cut the H1 dividend to 20 cents from 40.5 cents a year earlier. Living up to his nickname, ‘Drastic Dave’ Lewis wants to ‘create more financial flexibility’ to accelerate the strengthening of the balance sheet.
Lewis has a big task on his hands in turning round Diageo, whose shares are down almost 40% on a five-year view.
The former Tesco (TSCO) boss has taken the difficult decision to reduce the dividend, but the recovery essentially hinges on an uptick in demand from North America and China.
Changing drinking habits and weight-loss drugs, the latter increasingly viewed as a significant long-term threat to alcohol consumption, represent additional headwinds for Diageo.
Lewis also warned of ‘competitive pressure from more affordable alternatives addressing a more stretched consumer wallet’ in US spirits, a development that will worry investors.
Read the press release here: https://www.diageo.com/en/investors
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