Investors raised a glass to Diageo (LON:DGE) after the alcoholic drinks giant’s CEO Dave Lewis delivered further details about his strategy to turn the business around.
The unveiling of this restructuring plan overshadowed downbeat FY26 results and another dividend cut from Diageo. Shares in the Johnnie Walker-to-Smirnoff maker rallied in afternoon dealings.
‘Drastic Dave’ has a radical plan
Lewis is living up to his ‘Drastic Dave’ nickname at indebted Diageo. He intends to extract roughly $1 billion in savings from the business over the next three years. Restructuring costs relating to the cost-cutting drive are estimated at $1.2 billion.
The beverage alcohol behemoth insisted it has a clear strategy to drive outperformance of a spirits market which ‘remains robust, with long-term growth potential’. And the FTSE 100 company added that it ‘remains excited’ about the growth potential of iconic stout brand Guinness.
Hard work ahead
Diageo’s FY26 results underscored the size of the challenge ahead. Net sales dropped 3% to $19.64 billion. Operating profits plunged 27.2% to $3.156 billion after restructuring costs and impairment charges. A 2% decline in organic sales proved better than consensus feared, but included a dispiriting 0.4% volume drop.
The world’s biggest spirits company bemoaned weakness in North America and Asia Pacific. However, it did distil some growth from Europe, Latin America and Caribbean and Africa.
Lewis conceded there is ‘hard work ahead’, particularly in North America where organic sales declined 8.4% FY26. Organic sales were down 6.3% in Asia Pacific. This was mainly due to a decline in Chinese white spirits, which was partly offset by growth in India.
What did Lewis say?
Since taking the helm at Diageo, former Tesco (LON:TSCO) boss Lewis has cut costs, slashed the H1 dividend and re-based market expectations.
Lewis said: ‘This new strategy, executing with a new, more agile, competitive and cost-effective operating model, gives us confidence that we can return Diageo to a business consistently creating value for shareholders.’
He continued: ‘We remain a business with a very strong premiumisation agenda, but by activating our wider portfolio, we will be able to serve more consumers, across a variety of occasions.’
Diageo has been out of favour with investors for many years. But with Lewis taking radical steps to turn the company around, the time seems right to take another look.
Judging by today’s price action, the market likes the fact Lewis is taking a scythe to the cost base. Having slashed the H1 dividend, the market had largely anticipated a final dividend cut that reduces the total dividend from 103.48 cents to 50 cents.
Investors should keep in mind that turning Diageo around will take time. The firm is guiding for ‘broadly flat organic net sales growth’ in FY27. Consumers’ disposable incomes remain under pressure and drinking habits are changing at pace. Weight-loss drugs are a long-term threat to alcohol consumption, while Diageo’s premium brands face competitive pressure from cheaper alternatives.
Read the press release here: https://www.diageo.com/en/investors
