Diageo eyes USD1 billion cost cuts as unveils plans to boost fortunes

Diageo PLC on Thursday said it expects to deliver USD1 billion of cost savings over the next three years as it put ready-to-drink products and Guinness at the forefront of a fresh strategic approach.

"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," said Chief Executive Dave Lewis.

The initial market reaction was positive with shares trading 6.1% higher at 1,741.50 pence each in London on Thursday.

Lewis, the former boss of Tesco PLC, became CEO at Diageo in January, with his appointment announced in last November.

Shortly after his appointment he pledged to unveil a new strategic direction alongside Diageo's full-year.

London-based Diageo, which owns brands such as Guinness stout and Smirnoff vodka, said the three priorities set out at the half year are "serving us well and lay the foundation" for what will be covered at the capital markets day.

These are: relevant brands in competitive category strategies; customer, customer, customer; and a more agile and competitive operating framework.

The capital markets day presentation kicks off at 1330 BST.

Ahead of that Diageo released results for financial 2026 and set out guidance to 2029.

"We believe that the spirits market including [ready-to-drinks] remains robust, with long-term growth potential, and we have a clear strategy to drive market outperformance," the firm said.

"We also remain excited about the growth potential in Guinness, with accelerated investment to leverage this opportunity more fully," it added.

The firm added that Guinness 0.0 was the "number one" non-alcoholic beer in Great Britain.

In the financial year ended June 30, Diageo said pretax profit fell to USD2.56 billion from USD3.54 billion the year prior.

Operating profit declined to USD3.16 billion from USD4.34 billion after taking exceptional charges of USD2.53 billion, raised from USD1.37 billion the year before.

Excluding these, operating profit fell 0.4% to USD5.68 billion from USD5.70 billion, but rose 2.0% on an organic basis.

Diageo booked restructuring charges in the financial year of USD900 million, including costs of USD752 million for the implementation of its new operating framework.

The new framework, along with supply chain initiatives, are expected to deliver USD1 billion cost savings over the next three years.

The operating framework redesign itself is forecast to deliver USD850 million of savings, with 40% of the savings in financial 2027, and the balance in financial 2028. Diageo also expects USD150 million savings from supply chain initiatives, with 25% of the savings in financial 2027 and the balance in the following years.

In total, restructuring charges will amount to USD1.2 billion, including the charge taken in financial 2026.

In addition to the restructuring charges, Diageo took impairments of USD1.5 billion in financial 2026, related largely to Turkey, as well as the write down of the Don Papa brand.

Net sales declined 3.0% to USD19.64 billion from USD20.25 billion, with an organic drop of 2.0%. Volumes fell 0.4% and price/mix 1.6%.

Growth in Europe, Latin America & Caribbean and Africa was offset by weakness in North America and Asia Pacific.

CEO Lewis said: "We are pleased with our progress in LAC, Europe and Africa. We are focused on recovering our competitiveness in North America and we are working through the consequences of Government policy in Chinese white spirits."

Basic earnings per share were 78.1 US cents versus 105.9c before. Excluding exceptional charges, basic EPS edged up to 165.3c from 164.2c.

For financial 2027, Diageo expects broadly flat organic net sales growth, with North America organic net sales down mid-single-digit.

Organic operating profit growth is projected up low-to mid-single-digit, including the cost savings from the operating framework changes and supply chain savings.

Free cash flow of USD2 billion is forecast after the operating framework changes and supply chain savings.

Diageo expects to end financial 2027 around the mid-point of its target leverage range of 2.5 times to 3.0x net debt to earnings before interest, tax, depreciation and amortisation.

Over the medium-term to 2029, the firm expects low-single-digit organic net sales compound annual sales growth, mid-single-digit organic operating profit growth and "attractive" EPS growth ahead of organic operating profit growth.

In addition, it eyes cumulative free cash flow of around USD8 billion over the three financial years to 2029.

A final dividend of 30 US cents was declared, down from 62.98 cents a year ago, taking the full-year payout to 50c, down from 103.48c.

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