What Diageo (DEO) Said on Its Q1 Earnings Call

Key Points

• Diageo delivered modest Q1 growth: Organic net sales rose 0.6% excluding EABL (1.4% including it), while overall organic volume slipped 0.1%. Growth in most regions and in whiskey, Guinness and Smirnoff ready-to-drink products helped offset North American weakness.
• North America remained the main challenge, with organic net sales down 3.6% and U.S. sales down 3.7%. Weakness in Don Julio, Casamigos and Crown Royal partly offset gains in Guinness and Smirnoff; management said many turnaround initiatives will take nine to 12 months to show material benefits.
• Full-year guidance was maintained: Diageo expects broadly flat organic net sales, low- to mid-single-digit organic operating profit growth and around $2 billion in free cash flow, excluding EABL and after exceptional costs.

Diageo NYSE: DEO reported modest organic sales growth in its fiscal 2027 first quarter as gains across most regions offset continued weakness in North America, and the spirits maker reiterated its full-year outlook.

Organic net sales rose 0.6% excluding East African Breweries Limited, or EABL, Chief Financial Officer Nik Jhangiani said on the trading statement call. Including EABL, organic net sales increased 1.4%. Reported net sales rose 1.2% to $4.9 billion, with organic growth partly offset by foreign exchange and disposals.

Chief Executive Officer Dave Lewis described the quarter as “a small step in the right direction” amid significant organizational changes. He said North America remained the company’s biggest challenge, with the market still soft and the company focused on making its offering more competitive.

Overall organic volume slipped 0.1%, while price and mix contributed 0.7 percentage points to growth. Jhangiani highlighted momentum in whiskey, Guinness and Smirnoff ready-to-drink products.

North American turnaround remains a longer-term project

North American organic net sales fell 3.6%, including a 3.7% decline in the United States. Jhangiani said the U.S. result benefited slightly from the timing of sales, while distributor stock levels were in line with the year-earlier quarter.

Weakness in Don Julio, Casamigos and Crown Royal was partly offset by growth in Johnnie Walker. Guinness and Smirnoff Ice both posted double-digit growth in the U.S., Jhangiani said.

Lewis said the gains in Guinness and Smirnoff reflected underlying improvement rather than timing. Guinness benefited from wider distribution and higher sales velocity at existing outlets, while Smirnoff’s relaunch activity at the end of the previous quarter helped its first-quarter performance. Globally, Smirnoff ready-to-drink sales grew 15%, he said.

Many of the packaging and other changes outlined at Diageo’s August capital markets day have a nine- to 12-month lead time, Lewis said, meaning their material benefits have yet to reach the North American market. He declined to forecast U.S. holiday-season trends.

Lewis also said Diageo expects the Casamigos ready-to-drink canned product to return to market around the end of calendar first quarter into the second quarter, after the company regrouped following its earlier launch.

Growth outside North America

Latin America and the Caribbean led the company’s regional growth with a 4.8% organic net sales increase, supported by double-digit gains in several markets and high-single-digit growth in Scotch. Mexico was weak and Brazil was broadly flat, Jhangiani said.

Asia-Pacific grew 4.1%, helped by global travel and growth in Southeast and North Asia. Greater China declined by a mid-single-digit rate because of weakness in Taiwan, while Chinese white spirits and international premium spirits were relatively flat in mainland China.

India grew 3.4%, with its Prestige & Above segment up 7.1%. Growth in the premium business was partly offset by weakness in the Popular segment, which Jhangiani said was affected by regulatory and excise changes in Maharashtra and Karnataka. Lewis added that an ingredients issue disproportionately affected the Popular business early in the quarter, with conditions improving after it was resolved.

Europe, the Middle East and Africa grew 2.4%, led by Türkiye, Africa and the Middle East. Growth was volume-led, with negative price and mix reflecting targeted price repositioning.

Guinness posted double-digit growth in Africa and the DACH region, offsetting a low-single-digit decline in Great Britain and Ireland. Lewis attributed much of the decline in those markets to unusually warm weather, while also noting competition within stout. He said Guinness’ market share was flat in both areas and that there were no capacity constraints in the U.K. or Ireland.

Full-year guidance maintained

Diageo continues to expect broadly flat organic net sales growth and low- to mid-single-digit organic operating profit growth for fiscal 2027. It also expects free cash flow of around $2 billion after exceptional costs and excluding EABL.

The company expects to finish the year at the midpoint of its target leverage range, including benefits from the completion of the EABL transaction and the sale of RCB by United Spirits, Jhangiani said.

Jhangiani said Diageo had previously expected profit growth to be more heavily weighted toward the second half as restructuring benefits came through. Its current expectation is for a more balanced split, though he said the company would provide an update.

On costs, Jhangiani said the company entered the year well hedged but still had some exposure to volatility. Freight costs were experiencing inflation and pressure linked to oil prices, he said, although Diageo’s supply restructuring was designed in part to move production closer to customers.

About Diageo (NYSE:DEO)

Diageo plc is a global beverage-alcohol company headquartered in London, England. It develops, produces, markets and distributes spirits, beer and ready-to-drink beverages through a portfolio of well-known international and regional brands.

Its brands include Johnnie Walker, Crown Royal and Bulleit whiskies; Smirnoff, Cîroc and Ketel One vodkas; Captain Morgan rum; Don Julio and Casamigos tequila; Tanqueray gin; Baileys liqueur; and Guinness stout. The company sells products through retail, hospitality and e-commerce channels, serving consumers in markets across North America, Europe, Asia-Pacific, Latin America, Africa and other regions.

Diageo was formed in 1997 through the merger of Grand Metropolitan and Guinness.

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