Diageo shares jump 6.3% as CEO Lewis targets $8bn cash

Diageo PLC (LSE:DGE) shares jumped 6.3 percent to 1,744.9p after the spirits maker reported organic operating profit up 2 percent despite a 2 percent decline in organic net sales.

"There is hard work ahead, particularly in North America, but we are confident we can complete the turnaround without taking a step back in operating profit," Chief Executive Sir Dave Lewis said.

Reported revenue declined 3 percent to $19.64 billion in the year to 30 June, with volumes down 0.4 percent and an unfavourable price and product mix reducing sales by 1.6 percent. Growth in Europe, Latin America and the Caribbean and Africa was offset by weakness in North America and Asia-Pacific. Organic operating profit increased 2 percent, with the underlying margin improving 116 basis points to 28.9 percent. Reported operating profit fell 27.2 percent to $3.16 billion, reflecting $900 million of restructuring charges and $1.5 billion of impairments related mainly to Türkiye, the Don Papa rum brand and several smaller brands.

The full-year dividend was more than halved to 50 cents per share from 103.48 cents under a new payout policy. Lewis is targeting around $1 billion of savings over three years and cumulative free cash flow of approximately $8 billion for fiscal 2027-2029, with organic operating profit forecast to grow by a low-to-mid-single-digit percentage in fiscal 2027.

Organic sales would have grown by around 1.5 percent excluding Chinese white spirits, where government policies have weighed on the market. Pre-exceptional earnings per share edged 0.7 percent 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.

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 programme is expected to generate approximately $850 million of savings over two years from fiscal 2027, with an additional $150 million from supply-chain initiatives. Lewis said those savings would fund investment in the turnaround without requiring a reduction in pre-exceptional operating profit. For fiscal 2027, he expects broadly flat organic sales, including a mid-single-digit decline in North America.

The results come as Diageo works to restore competitiveness in North America, its largest market, where rivals including Pernod Ricard and Brown-Forman compete. The company's capital markets day later today will provide further detail on the turnaround plan.

The dividend cut and restructuring charges represent a reset year for Diageo as Lewis reshapes the business. Investors will watch the capital markets day presentation for specifics on the North America recovery and the timeline for returning to pre-restructuring profit levels.

This article is for informational purposes only and does not constitute investment advice.