Diageo jumps as CEO Lewis maps out America turnaround and $8bn cash target

Diageo PLC (LSE:DGE) shares jumped 6.3% to 1,744.9p after the booze maker reported higher underlying profit despite lower sales, with chief executive Dave Lewis setting out new strategic priorities for the coming three years.

Organic net sales fell 2% in the year to 30 June, with volumes down 0.4% and an unfavourable price and product mix reducing sales by 1.6%.

Reported revenue declined 3% to $19.64 billion. Growth in Europe, Latin America and the Caribbean and Africa was offset by weakness in North America and Asia-Pacific.

Diageo said organic sales would have grown by around 1.5% excluding Chinese white spirits, where government policies have weighed on the market.

Organic operating profit increased 2%, while the underlying margin improved by 116 basis points to 28.9%. Cost savings more than offset the impact of tariffs and adverse sales mix.

Reported operating profit fell 27.2% to $3.16 billion, however, reflecting $900 million of restructuring charges and $1.5 billion of impairments. The latter related mainly to Türkiye, the Don Papa rum brand and several smaller brands.

Pre-exceptional earnings per share edged 0.7% higher to 165.3 cents.

Free cash flow increased by $463 million to $3.21 billion, while net debt stood at $20.5 billion and leverage was 3.1 times adjusted earnings.

The full-year dividend was more than halved to 50 cents per share, down from 103.48 cents under its new payout policy.

Chief executive Sir Dave Lewis, who is also unveiling more strategic tweaks in a capital markets day in the afternoon, said Diageo was working to restore its competitiveness in North America.

The group expects its restructuring programme to generate around $850 million of savings over two years from the 2027 financial year.

Lewis said Diageo’s focus is on restoring competitiveness in North America while managing the effects of government policy on Chinese white spirits.

His strategy centres on keeping brands "relevant", improving customer focus and introducing a more agile operating structure.

The restructuring will cost around $800 million in the 2026 financial year, but is expected to generate savings over the following two years.

Lewis said those savings would fund investment in the turnaround without requiring a reduction in pre-exceptional operating profit.

Looking ahead, he expects broadly flat organic sales in the 2027 financial year, including a mid-single-digit decline in North America, while organic operating profit is forecast to grow by a low to mid-single-digit percentage.

The group is targeting around $1 billion of savings over three years, comprising $850 million from its new operating structure and $150 million from supply-chain initiatives.

Lewis said there was “hard work ahead, particularly in North America”, but Diageo was confident it could complete the turnaround “without taking a step back in operating profit”.

For the 2027-2029 financial years, Diageo expects low-single-digit annual sales growth, mid-single-digit operating profit growth and cumulative free cash flow of around $8 billion.