Full-year net sales came in at $19.6bn (as expected), down 2.0% organically, with volumes and prices both falling. This was driven by declines in North America and Asia Pacific, which more than offset growth in other regions.
Underlying operating profit increased 2.0% to $5.7bn ($5.6bn expected), excluding $0.9bn of restructuring charges taken over the year.
Free cash flow increased by $0.5bn to $3.2bn, and net debt decreased by $1.4bn to $20.5bn. The final dividend has been cut to 30 cents per share, down 52%.
2027 guidance points to flat organic net sales growth, with underlying operating profit to grow low-to-mid single digit.
The shares rose 6.5% following the announcement.
Our view
Diageo’s full-year results were mixed but better than feared. Sales remained under pressure, especially in North America and Chinese white spirits, but profits proved more resilient than expected. The clearer efficiency plan helped support a positive share price reaction, though the dividend rebasing was a reminder that the turnaround still needs funding.
The Capital Markets Day gave investors more substance on the recovery plan. Positives included sharper category priorities, bigger pushes behind Guinness and ready-to-drink products, and around $1bn of planned savings over three years. Most of this is expected from a redesigned operating framework, with global overheads targeted to fall from over 14% of sales to 10.5%, alongside extra supply chain efficiencies.
Management also seems more willing to act where momentum has faded. US price cuts for Casamigos Tequila appear to be helping stabilise volumes, and the wider plan should make better use of Diageo’s portfolio across more price points and occasions.
But the risks remain significant. North America is still the main problem, with US spirits demand weak and guidance pointing to further pressure in 2027. If savings and tighter cost control are to support profit growth, then Diageo will need to make sure that brand investment remains strong enough to rebuild sales momentum.
There’s also operational risk. Cutting overheads and reshaping teams should make the business more agile, but disruption is possible as the new operating model beds in. Tequila price resets also require careful handling to avoid permanently diluting the brand.
Guidance reflects that balancing act. 2027 organic sales are expected to be broadly flat, with North America down mid-single digit, but organic operating profit should grow low-to-mid single digit as savings come through. A durable recovery still depends on better volumes and restored US competitiveness.
Longer term, changing alcohol consumption habits and uncertainty around GLP-1 weight-loss drugs could make volume growth harder to come by, especially in developed markets.
The dividend cut is painful but should improve financial flexibility. If the turnaround gains traction, leverage falls, and free cash flow improves, there is scope for dividends to recover over time – though not guaranteed.
The valuation has started to recover but remains well below Diageo’s long-term average. That looks fair for now. The brand portfolio is still high quality, and the self-help plan is more credible. But for a more durable improvement in sentiment, cost savings and new initiatives need to drive sustainable sales growth, not just protect profits.
Environmental, social and governance (ESG) risk
The food and beverage industry tends to be medium-risk in terms of ESG, though some segments like agriculture, tobacco and spirits fall into the high-risk category. Product governance is a key risk industry-wide, especially in areas with strict quality and safety requirements. Labour relations and supply chain management are also industry-wide risks, with other issues varying by sub-sector.
According to Sustainalytics, Diageo’s management of ESG risk is strong.
The group aims to achieve net zero emissions by 2050, or sooner, with Scope 1, 2 & 3 emissions targets in place. Diageo has set water reduction targets and deadlines; however, it does not disclose its initiatives to achieve this and there is no external certification for its environmental management activities.
Diageo key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember that yields are variable and not a reliable indicator of future income. Keep in mind that key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.