Premium drinks leader Diageo (DGE) served up weak results for the year to June 2025 with operating profits down 27.8% to $4.3 billion (£3.2 billion) due to challenging spirits market conditions, unfavourable currency swings and an earnings hangover from restructuring costs.
The FTSE 100 distiller failed to name a new CEO following the recent departure (16 July) of Debra Crew, forecast flat sales for the new financial year and increased its estimate of the impact of US tariffs from $150 million to $200 million.
So why did the Johnnie Walker-to-Smirnoff purveyor’s shares rally on these numbers?
Well, the profits decline proved better-than-feared and investors welcomed evidence of ongoing sales improvement, with organic growth delivered in four out of Diageo’s five big markets.
In addition, the Ketel One-to-Captain Morgan maker upped its cost-savings target by $125 million.
Organic sales increased 1.7% in full year 2025, beating the 1.4% analysts were looking for and driven by pricing and volume growth, while Diageo’s free cash flow increased by $0.1 billion to $2.7 billion.
By region, the beverage alcohol behemoth delivered organic growth across North America, Europe, Latin America and Caribbean, and Africa, but Asia Pacific continued to drag on performance with sales down 3.2%.
Turning to individual brands, Don Julio delivered double-digit growth in all regions, while Guinness delivered double-digit growth, iconic whisky brand Johnnie Walker continued to win market share, and Diageo’s non-alcoholic portfolio generated palate-pleasing organic sales growth of over 40%.
Led by interim CEO Nik Jhangiani, Diageo increased its cost-savings programme target increased from roughly $500 million to about $625 million over the next three years.
For the new financial year, Diageo expects flat organic sales growth with a more pronounced second-half weighting, while organic operating profit growth to be mid-single-digit ‘including the impact of tariffs as at this time’.
‘While we are encouraged by areas of progress and the standout performance from Don Julio, Guinness and Crown Royal Blackberry, there is clearly much more to do across our broader portfolio and brands,’ conceded Jhangiani.
‘We recognise the need to drive meaningful growth opportunities in an evolving TBA (total beverage alcohol) landscape, and we are sharpening our strategy to accelerate growth.’
AJ Bell investment director Russ Mould says: ‘Guinness remains very successful, and significantly the alcohol-free Guinness Zero has been an important component of that. This may quieten previous suggestions this part of the business might be sold so the company can focus exclusively on spirits.
‘Sales of some brands may be on the agenda for any incoming new boss given a need to get the balance sheet in better shape - although the company will not want to lose any of its crown jewels.’
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