Diageo H2 2026 Earnings Report

Diageo EPS Results

• Actual EPS: N/A
• Consensus EPS: $2.55
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Diageo Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $9.15 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Diageo Announcement Details

• Quarter: H2 2026
• Date: 8/6/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 6:00AM ET

Diageo (NYSE:DEO) is a global producer, marketer and distributor of alcoholic beverages, headquartered in London, England. The company was created through the 1997 merger of Guinness plc and Grand Metropolitan plc and is publicly traded on multiple exchanges, including the New York Stock Exchange (NYSE: DEO) and the London Stock Exchange. Diageo operates a worldwide business, selling products in a broad range of markets across the Americas, Europe, Africa, Asia and Latin America.

Diageo’s core activities cover the production, marketing and sale of a diverse portfolio of spirits, beer and liqueurs. Its brand portfolio includes internationally recognized names across categories such as Scotch whisky, vodka, rum, gin, tequila, liqueurs and stout beer. Well-known brands in its stable include Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, Don Julio, Cîroc and Guinness, among others. The company manages supply chain operations, manufacturing facilities and global distribution networks to sustain brand availability in both on-trade and off-trade channels, as well as travel retail and growing e-commerce channels.

Diageo serves consumers in many countries and emphasizes premiumization, innovation and brand-building to drive long-term growth. Its commercial strategy typically focuses on growing global premium brands, expanding presence in high-growth markets, and investing in marketing and route-to-consumer capabilities. The company is governed by a board of directors and an executive management team based at its London headquarters and engages in corporate initiatives that include sustainability and responsible drinking programs alongside its commercial activities.

Diageo H2 2026 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: Organic net sales declined 2%, led by an 8.4% decline in North America—particularly a roughly 21% drop in tequila—and a 6% decline in Asia Pacific due to Chinese white spirits weakness. Excluding Chinese white spirits, the group’s sales decline would have been approximately 0.5%.
• Positive Sentiment: Despite lower sales, organic operating profit increased 2% and pre-exceptional EPS rose 0.7%, supported by the Accelerate savings program, cost controls, and favorable foreign exchange. Europe, Latin America, and Africa delivered strong growth, while India grew approximately 7%.
• Positive Sentiment: Free cash flow rose $463 million to $3.2 billion, reducing net debt by $1.4 billion to $20.5 billion and lowering leverage from 3.4x to 3.1x. Planned asset sales could provide an additional approximately 0.35x reduction in leverage.
• Positive Sentiment: Diageo outlined a two-year restructuring plan involving approximately $1.2 billion of charges and expected savings of about $1 billion. Management expects these savings to fund selective brand and innovation investment without reducing operating profit, though execution and workforce impacts remain significant.
• Negative Sentiment: Exceptional charges were substantial, including approximately $1.5 billion of impairments and $0.9 billion of restructuring charges. Major impairments included $786 million related to Turkey and $287 million for the Don Papa rum brand.

Presentation

[Dave Lewis, CEO at Diageo]

Good morning, ladies and gentlemen, and thank you for joining us this morning. Nik and I are here to share with you the results of fiscal 2026 for Diageo, and I'd also like to say something about the Capital Markets Day, which is taking place in our office this afternoon. We've issued today two statements, one to cover 2026 and the other to cover Capital Markets Day. I think the way we'll do this, if it's okay with you, is I'll ask Nik to walk you through the results of last year, and then I'll come back and share a few thoughts as we get ready for the Capital Markets Day this afternoon. Nik, over to you.

[Nik Jhangiani, CFO at Diageo]

Thank you, Dave. Fiscal 2026 has been a mixed year with good momentum in Europe, Latin America, and Africa, but with challenges in North America and Asia Pacific that we've talked about through the year. We're focused on becoming more competitive in the U.S., and we'll share more details on this later at our Capital Markets Day. We have delivered strong free cash flow, which has enabled us to reduce leverage at the end of the year. We've made good progress on the three priorities that Dave set out at our interim results, and the implementation of the new operating model is already well progressed. The savings from the actions we are taking will allow us to invest without reducing operating profit, and we look forward to expanding and sharing more detail on this later today. Now, let me walk you through our results.

[Nik Jhangiani, CFO at Diageo]

In the context of a continued challenging macro environment and industry backdrop in many of our markets, but in particular, U.S. spirits and Chinese white spirits, organic net sales declined 2%. However, our group operating profit increased 2%. Notably, excluding the impact from Chinese white spirits, organic net sales would have declined around 0.5 percentage point with organic profit growth around 4.5%. For Asia Pacific, excluding Chinese white spirits, net sales would've been up low single digits. Europe, LAC, and Africa delivered strong growth. Our focus on cost savings through the Accelerate program supported organic operating profit and offset the impact of lower gross profit due to the mix of market growth.

[Nik Jhangiani, CFO at Diageo]

EPS pre-exceptionals was up 0.7% with the positive impact of organic operating profit growth and favorable foreign exchange, mostly offset by lower fair value remeasurement versus the prior year, as well as lapping the impact of the disposal of our businesses in Ghana and Nigeria. Our strong focus on cash resulted in free cash flow delivery of $3.2 billion for the year, $463 million up on last year. We also recommended a full-year dividend of $0.50 per share, equating to a 30% dividend payout ratio in line with the dividend payout policy we moved to earlier this year of 30%-50%. Turning to the regions, the biggest challenge was an 8.4% organic sales decline in North America, driven by softness in our U.S. spirits performance, particularly in tequila, which declined approximately 21%.

[Nik Jhangiani, CFO at Diageo]

This was driven by both Casamigos and Don Julio with tough comps for Don Julio and down trading within what has been a weaker category. John will talk to this later at our Capital Markets Day. Organic growth in Diageo Beer Company was good at around 4%, led by both Guinness and Smirnoff RTD. Moving to Europe, organic net sales increased approximately 3%, driven by double-digit growth in Guinness in Great Britain and double-digit volume growth in raki, Scotch, and gin in Turkey as a result of increased distribution and visibility. The continued impact of weakness in Chinese white spirits adversely impacted sales in APAC, resulting in organic sales down around 6%. The negative impact of Chinese white spirits on region net sales was circa 8%.

[Nik Jhangiani, CFO at Diageo]

In India, continued momentum in prestige and above segment brands, combined with locally inspired flavor and innovation on Smirnoff and successful format innovation on Royal Challenge contributed to strong results. This momentum enabled India to deliver organic net sales growth of around 7%, despite the adverse impact from the excise policy changes in Maharashtra, which especially impacted net sales from lower prestige price points. In LAC, we saw net sales growth in most markets with particularly strong performance in Brazil and Colombia. Notably, the second half in Brazil saw a recovery in consumer confidence following the impact on the industry in Q2 of counterfeit alcohol incidents, which was particularly pronounced in the on-trade. Across Africa, we saw broad-based net sales growth across the region with strong double-digit growth in South Africa, driven by RTDs and also strong beer performance across East Africa.

[Nik Jhangiani, CFO at Diageo]

Let me now take you through the movement in net sales for the year in more detail. Reported net sales declined 3%, driven by organic sales decline and the adverse impact of acquisitions and disposals. This was only partly mitigated by favorable foreign exchange and the hyperinflation adjustments. You'll note we have presented the offset between the outsized hyperinflationary adjustment relating to Venezuela and the foreign exchange impact, which are due to the hyperinflationary accounting and our foreign exchange reporting approach. This presentation allows a clearer picture of the movements within organic growth, excluding this impact. Organic volume growth declined 0.4% as good volume growth in Africa and LAC was offset by volume losses in NAM and APAC. Excluding the impact of Chinese white spirits, volumes were broadly flat.

[Nik Jhangiani, CFO at Diageo]

Europe and LAC delivered positive price mix with 1.6% decline at the group level, driven mainly by the adverse impact of Chinese white spirits weakness and the decline in U.S. spirits, primarily due to tequila, as I talked to earlier. If you exclude the impact of Chinese white spirits, price mix would be down approximately half a point. The negative impact from acquisitions and disposals was due to the disposal of Guinness Ghana at the beginning of fiscal 2026, and the disposals of Guinness Nigeria, which completed in September 2024, and CÃŽROC, which completed in the fourth quarter of fiscal 2025. Turning now to the movement in operating profit for the year. Reported operating profit before exceptionals declined 0.4%, with organic operating profit growth and favorable foreign exchange offset by the movement in acquisitions and disposals and lower fair value remeasurement.

[Nik Jhangiani, CFO at Diageo]

Gross profit declined $506 million organically, with adverse product mix, cost inflation, and tariffs being only partly mitigated by cost efficiencies. Organic profit growth was supported by savings from Accelerate, from more efficient A&P and overhead spend, partly offset by lower gross profit. Marketing spend was lower, in part reflecting Accelerate savings, combined with deliberate prioritization and being more choiceful in how and where we spend. As I've said consistently through the year, our commitment to investing in our brands for the future remains unchanged. Accelerate also contributed to lower overheads, with savings reflecting optimized IT costs and strong cost controls across the corporate organization. I am pleased that we delivered $514 million, or circa 85% of the Accelerate program in fiscal 2026. As mentioned, the savings come from a focus on driving efficiency and effectiveness from A&P investment, supply, and overheads.

[Nik Jhangiani, CFO at Diageo]

You will have seen some of the detail in the earlier slides on the A&P savings of $210 million, as well as $130 million in lower overheads. This was also supplemented by circa $180 million from supply savings and also $20 million from trade spend efficiency. You may remember that the latter was something we had said would take longer to come through and benefits the P&L through net sales. Going forward, we will update you on supply chain savings and the operating framework as shared separately in our CMD release and the event later today. Moving to cash. Free cash flow increased $463 million versus fiscal 2025 to $3.2 billion. This strong year-on-year delivery was driven by a more disciplined investment in CapEx and maturing stock, along with lower tax payments.

[Nik Jhangiani, CFO at Diageo]

This result also includes a circa $125 million one-off investment in working capital to increase resilience through the implementation of our new S/4 HANA ERP system, and to a lesser degree, to mitigate risk arising from the Middle East conflict. The cash outflow from maturing stock through the year was minimal as we continue to optimize investment with more frequent and dynamic reviews of our mid to long-term maturing liquid requirements. CapEx was approximately $1.2 billion, a decrease of about $370 million on last year, reflecting a disciplined approach to investing in projects including Guinness production capacity expansion, supply agility, and digital infrastructure. Tax paid was lower, partly due to a historic tax refund of circa $100 million. EPS pre-exceptionals increased 0.7% on last year to $1.653, mainly driven by organic operating profit growth, partly offset by lower fair value remeasurement.

[Nik Jhangiani, CFO at Diageo]

There was also some offset between favorable foreign exchange and the negative impact of the disposals on reported operating profit I mentioned earlier and higher finance charges. I would like to spend some time on exceptional operating charges given their magnitude. I'll take you through the detail particularly related to impairment, but also the work on restructuring. During the period, we incurred impairment charges of circa $1.5 billion and restructuring charges of circa $0.9 billion. The impairment charge included two large items. Firstly, a $786 million charge related to the Turkey business and the goodwill from the Mey İçki acquisition and several brands. The Turkey-related impairment was largely due to the impact of hyperinflationary accounting on carrying values relative to the inflationary environment as we look to be more competitive on shelf.

[Nik Jhangiani, CFO at Diageo]

As you will have seen in our fiscal 2026 results, we're pleased with the on-the-ground performance in Turkey, despite the challenges of operating in a high inflationary environment. The other sizable amount was a $287 million charge related to the impairment of the Don Papa brand, which was impacted by the decline of the rum category in Europe. The restructuring charges are mainly related to the implementation of our new operating framework, with $752 million in fiscal 2026, and the balance of the restructuring related to supply chain and Accelerate program, which will now be closed off. This included impairments related to our supply chain assets as we took corrective actions to rightsize our capacity based on industry outlooks and improve returns. Moving to the balance sheet, we closed the year with lower net debt at $20.5 billion.

[Nik Jhangiani, CFO at Diageo]

This is $1.4 billion lower than at the close of the prior year, driven by strong free cash flow delivered through fiscal 2026. This reduction in net debt is reflected in our leverage ratio, which closed the year at 3.1x, down from 3.4x at the end of fiscal 2025. As a reminder, we had guided that the completion of the sale of our 65% shareholding in EABL announced in December is expected to de-lever our balance sheet by circa 0.25x and to complete in the second half of calendar 2026. In addition, in March 2026, USL announced the sale of its ownership in Royal Challengers Bengaluru, and the completion process is progressing as planned, which should also result in around a 0.1x reduction in net debt-to-EBITDA.

[Nik Jhangiani, CFO at Diageo]

At this time, I would normally take you through guidance, but I will be doing that later today at the Capital Markets Day. With that, I'm going to hand the call back to Dave.

[Dave Lewis, CEO at Diageo]

Thanks very much, Nik. If I look now to the Capital Markets Day this afternoon, as you will have seen in the release, I'm very happy to say that the three priorities that we set out earlier in the year of building relevant brands in competitive category strategies, a complete focus on the customer and our channel management, and a more agile and competitive operating framework have laid a really very firm foundation on which we'll be talking more at the Capital Markets Day this afternoon. I suppose I would point to the changes in the operating framework because they trigger quite a significant restructuring charge for Diageo. The total restructuring that we'll talk about in the Capital Markets Day over two years is a $1.2 billion restructuring plan. $1.1 billion of that relates to the operating framework changes, and $100 million or so is related to the supply chain.

[Dave Lewis, CEO at Diageo]

The savings from those restructurings are around $1 billion. $850 million of that is in the operating framework, and $150 million of that is in the supply chain. These savings are significant. They're very important as we chart the turnaround of Diageo. The savings will allow us to invest in innovation selectively where we need to improve our competitiveness, but they also allow us to do so without needing to reduce the operating profit, and that's something we'll talk much more about later today. A restructuring program of this size obviously has very significant impacts on Diageo colleagues, and I'd like to put on the record my deep appreciation for the way that Diageo colleagues have engaged with this change program, most of which has been communicated throughout the business a month or so ago. Thank you for listening to the call.

[Dave Lewis, CEO at Diageo]

Look forward to seeing many of you this afternoon, and take care.

Participants

Executives

• Dave Lewis, CEO
• Nik Jhangiani, CFO