Investing.com — Plc cut its interim dividend by more than half and lowered its full-year sales and profit guidance on Wednesday after organic net sales in North America fell 6.8% in the first half of fiscal 2026, sending shares in the world’s largest spirits maker down over 5%.
The British spirits maker, whose brands include Johnnie Walker whisky and Don Julio tequila, reported first-half organic net sales declined 2.8% to $10.46 billion, missing analyst consensus of a 2% decline.
Organic operating profit fell 2.8%, better than the consensus estimate of a 3.9% drop, while earnings per share before exceptional items came in at 95.3 cents against a consensus of 93.1 cents.
The interim dividend was cut to 20 cents per share from 40.5 cents a year earlier. The company said it was targeting a 30-50% payout policy going forward, with a minimum annual floor of 50 cents.
“Only several weeks in I can already see significant opportunities for Diageo to act more decisively to enhance its competitiveness and broaden the portfolio offering leading to higher growth,” Chief Executive Sir Dave Lewis said.
The collapse in U.S. Spirits was the sharpest drag on results. Don Julio tequila net sales fell 20.9% and Casamigos declined 30.9%, reflecting what the company described as “a softer tequila category, increased competitive intensity” and consumer downtrading.
Overall U.S. Spirits net sales declined 9.3% in the first half, with volumes down 6.8% and negative price/mix of 2.5%. Diageo held or gained total market share in approximately 30% of measured markets, recording a 9 basis point total beverage alcohol share loss in the United States, which represents around 35% of total net sales value in measured markets.
Morgan Stanley, which rates the stock “underweight” with a price target of 1,495 pence, noted that lower marketing spend provided a $178 million benefit to first-half operating profit, flagging that the organic EBIT beat relative to consensus was partially explained by that reduction rather than underlying operational strength.
BofA Securities, which rates the stock a “buy” with a price target of 1,920 pence, said consensus was likely to move lower on sales given revised full-year guidance implying organic sales of minus 1% to minus 3% in the second half, though the impact on EBIT and earnings per share would be modest.
Greater China compounded the damage, with net sales falling 42.3% organically, driven by a 50.4% volume decline in Chinese white spirits following market policy changes. Excluding Chinese white spirits, group organic net sales would have been approximately 2% higher.
Against those declines, Europe delivered organic net sales growth of 2.7% and organic operating profit growth of 9.1%, led by Guinness, which grew organic net sales 10.9%. Africa grew organic net sales 10.9% and Latin America and Caribbean rose 4.5%.
For fiscal 2026, Diageo now expects organic net sales to decline 2-3%, against prior guidance of flat to slightly down and a street consensus of minus 1.1%.
Organic operating profit is expected to be flat to up low-single-digit, revised from a prior forecast of low- to mid-single-digit growth.
Free cash flow guidance of approximately $3 billion was unchanged, though the company noted that figure excludes an approximately $100 million one-off working capital impact related to inventory build ahead of an IT systems implementation in early fiscal 2027.
Net debt stood at $21.7 billion at Dec. 31, with a net debt to adjusted EBITDA ratio of 3.4 times. In December, Diageo agreed to sell its shareholding in East African Breweries Plc to Asahi Group Holdings Ltd. for estimated net proceeds of $2.3 billion, a transaction expected to reduce leverage by approximately 0.25 times upon completion in the second half of calendar 2026.
The Accelerate cost savings programme is now expected to deliver approximately 50% of its $625 million three-year target in fiscal 2026, with around 40% delivered in the first half through supply chain, advertising and overhead efficiencies.
Sir Dave Lewis, who took the role on Jan. 1, outlined three immediate priorities: building competitive category strategies, strengthening customer relationships, and redesigning the operating model. A fuller strategic update is expected in summer 2026.
Jefferies, which rates the stock a “buy” with a price target of 2,000 pence, said the central debate was whether a further profit reset for fiscal 2027 could follow once strategic details emerge, noting Diageo trades at 15.8 times calendar 2026 estimated earnings against a staples sector multiple of 19.3 times.