UBS sees Diageo’s first quarter under pressure as China and US weigh on sales
Published: 07:30 31 Oct 2025 EDT
UBS expects Diageo PLC (LSE:DGE) first-quarter update next week to show a soft start to the year, with group organic revenue likely down 1.7%, weaker than consensus but marginally better than what most investors anticipate.
North America remains the problem area. UBS forecasts a 2.8% decline in regional sales and said US spirits sell-out, the measure of what leaves retailers’ shelves, fell about 5% according to trade data.
Shipments may have fared slightly better, down around 4%, helped by a temporary boost from lower tariffs on imports from the UK and Europe. That benefit, however, is expected to unwind in the second quarter.
Asia Pacific looks worse. UBS predicts an 11% decline in the region, mainly reflecting weaker demand for Baijiu in China after stricter enforcement of the government’s anti-extravagance campaign.
The bank also cited continued destocking by distributors as another drag.
Elsewhere, it sees little change in trading trends from the second half of last year.
UBS said full-year guidance now looks challenging. Diageo’s own forecast assumes a sharp pickup to about 4% organic revenue growth in the second half, a target “understandably drawing some scepticism” given the industry’s weak backdrop and the softness in its two biggest markets, the US and China.
Even so, UBS thinks Diageo can hit that number thanks to easier comparisons in Europe, particularly in France and Germany, stronger Guinness production capacity in the US and Europe, and new product launches in the ready-to-drink segment.
Travel retail and China are also expected to stabilise once current destocking runs its course.
The bank remains constructive on the medium-term outlook, arguing that the US spirits market can recover to around 3% annual growth, compared with 4 to 5% historically, which could support more than 4% group sales growth over time.
In the short term, though, investors may need to toast their patience, as Diageo’s recovery, UBS suggests, will take more than one quarter to mature.
