TLDR
- Diageo reported Q1 net sales of $4.9 billion, down from $5 billion in the same period last year, with shares falling over 6% to levels last seen in 2015.
- The company cut its full-year outlook, now expecting flat or slightly lower sales for 2026 instead of the previously forecast 1.7% growth.
- North American sales dropped 3.5% while Asia Pacific fell 9.7%, with particular weakness in tequila sales and Chinese white spirits consumption.
- Interim CEO Nik Jhangiani remains in position despite earlier expectations of a permanent CEO announcement by end of October, raising investor concerns about company direction.
- Diageo announced a $625 million cost savings target over three years, with speculation mounting about potential asset sales including the Guinness brand.
Diageo shares dropped more than 6% on Thursday after the spirits maker cut its sales and profit forecasts. The stock fell to levels not seen since 2015.
The company reported first-quarter net sales of $4.9 billion between July and September. That’s down from $5 billion in the same period last year.
Interim CEO Nik Jhangiani called the performance “unsatisfactory.” He said the company needs to move faster on improvements.
The maker of Johnnie Walker whisky and Smirnoff vodka is facing pressure in its two biggest markets. North American sales fell 3.5% during the quarter.
Asia Pacific sales dropped 9.7% year on year. Europe provided the only bright spot with growth of about 5%.
Trouble in Key Markets
In the United States, where Diageo generates the most revenue, consumer spending proved weaker than expected. Tequila sales fell by double digits.
Don Julio tequila has been a critical growth engine for the company. The steep decline in this category hit particularly hard.
China presented another challenge. The company flagged a double-digit decline in sales driven by lower consumption of baijiu, the national white spirit.
Lower demand affected both the volume and value of sales in the country. This marks a breakdown in one of Diageo’s key growth strategies of selling to emerging market middle classes.
The company did see some positive signs. Guinness beer and ready-to-drink products like Smirnoff Ice recorded sales growth.
Diageo now expects 2026 sales to be flat or slightly lower. Operating profit growth is projected at low to mid single digits.
The previous forecast called for sales growth similar to last year’s 1.7% increase. Operating profit was expected to grow in the mid single digits.
The company announced plans to cut costs by $625 million over the next three years. It’s also looking to sell assets as the drinks industry copes with cooling post-pandemic demand.
CEO Uncertainty Adds to Investor Concerns
Jhangiani stepped into the interim CEO role after Debra Crew’s abrupt exit in July. He previously said a decision on a permanent replacement would come by the end of October.
The company provided no update on Thursday. This raised questions among investors about leadership direction.
Cranley Macfarlane from Church House Investments questioned why Jhangiani hasn’t been confirmed permanently. Some investors had expected this announcement.
Richard Scrope from VT Tyndall Global Select Fund said the uncertainty creates doubts about strategy. A new CEO could bring different views and approaches.
Investment director Russ Mould from AJ Bell warned that Diageo’s performance might reflect more than economic cycles. It could point to shifting drinking habits or reduced appeal of key brands.
Market speculation has emerged about potential dramatic actions. Some analysts suggest Diageo might spin off Guinness to create a business focused purely on spirits.
The company faces $200 million in expected tariff impacts from UK and European imports into the US. This figure remains unchanged from previous estimates.
Diageo’s shares have fallen almost 30% so far this year. The latest decline compounds the losses.
The company is working to adapt more quickly to evolving consumer preferences. Jhangiani said the focus remains on what management can control.
Diageo expects to drive efficiencies and prioritize investments. The goal is responding faster to market changes.
Analysts maintain a Moderate Buy consensus on the stock. The highest price target stands at $131, with a consensus of $120 implying 36% upside potential.
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