Diageo, the global spirits giant behind iconic brands like Guinness, Smirnoff vodka, and Johnnie Walker whisky, has announced a significant dividend reduction and a downward revision of its annual sales and profit forecasts. This marks the second such adjustment in just four months, highlighting ongoing challenges in key markets such as the United States and China.
Leadership and Strategic Shifts Under New CEO
Dave Lewis, the newly appointed chief executive who took over in January, has swiftly implemented cost-cutting measures, earning him the nickname "Drastic Dave" from his tenure at Unilever. In his first major move, Lewis halved the shareholder dividend to 20 cents per share, down from 40.5 cents a year ago. He described the decision as difficult but necessary to reinvest in the company's competitive edge and capacity.
Market Pressures and Consumer Trends
The company is grappling with multiple headwinds, including the lingering effects of Donald Trump's tariffs, tightened household budgets, and evolving consumer habits. Notably, the rise in popularity of GLP-1 weight loss medications and a growing trend among younger demographics toward reduced alcohol consumption are impacting demand. Lewis noted that while spirit consumption remains stable, the number of drinks per occasion has declined, reflecting broader economic pressures.
Capacity Constraints for Guinness in London
Despite Guinness being hailed as a "phenomenal asset" and the fastest-growing beer brand in North America, Diageo faces operational hurdles. Lewis pointed out capacity constraints in London, where pubs struggle to meet demand for the stout. He emphasized the urgency of addressing these geographical and production limitations to capitalize on the brand's growth potential.
Financial Outlook and Investor Response
Diageo's shares fell by 6% in early trading following the announcement, making it the biggest decliner on the FTSE 100. The company projects organic sales to decrease by 2% to 3% in 2026, with organic operating profit expected to remain flat. To adapt to squeezed consumer finances, Diageo plans to introduce smaller product packs as a strategic response.
This development comes after a period of investor unrest under former CEO Debra Crew, who resigned abruptly last July. Lewis's appointment in November initially boosted share prices, but recent results underscore the persistent challenges in a volatile global market.
