Diageo: Profit at FTSE 100 giant tumbles despite Guinness growth
Profit at FTSE 100 giant Diageo has fallen far short of expectations as high costs hammer the drinks giant.
Net sales fell 0.1 per cent to $20.24bn (£15.24bn), Diageo told markets this morning, below analysts’ expectations of 1.4 per cent.
It expects next year’s organic sales growth to be flat, and for organic operating profit growth to be in the mid-single-digits, including the impact of tariffs.
Operating profit for 2025 fell 27.8 per cent $4.33bn year on year, far below the operating profit of $5.65bn (£4.25bn) that analysts had predicted.
Its operating profit margin dropped 8.19 per cent to 21.4 per cent, which Diageo put down to “exceptional impairment and restructuring costs”.
“While we are encouraged by areas of progress… there is clearly much more to do across our broader portfolio and brands,” Nik Jhangiani, interim chief executive, said.
“We recognise the need to drive meaningful growth opportunities [and] we are sharpening our strategy to accelerate growth,” he added.
In July, the FTSE 100 giant announced that it would replace then-chief Debra Crew just over a year into her tenure, with then-finance chief Jhangiani stepping into the role while the company looks for a successor.
Crew had overseen a tumultuous year at Diageo, having been forced to issue a profit warning just five months in after the company misread sales trends in Latin America – a key market – leading to a steep drop in earnings guidance.
Shares in Diageo have fallen 43 per cent since Crew took over, as the post pandemic boom in premium spirits gave way to weaker demand and global economic uncertainty.
The FTSE 100 drinks giant also announced that it would up its cost-cutting goals to $625m in the face of slipping profit, up from $500m.
Guinness shows double-digit growth
Diageo’s standout brands include Don Julio, Guinness and Johnnie Walker. Each brand has gained market share in the last year, with the first two showing double-digit growth.
Guinness has been billed as a way for Diageo to offset its flagging spirits business – demand for the drink has shot up in recent years thanks to a spike in popularity among Gen Z on social media.
There had been speculation that the parent company would spin off Guinness as part of a wide-ranging cost-cutting plan, but so far, there has been no hard evidence for the decision.
Robinhood UK lead analyst Dan Lane said: “The fact that [overall] profits and margins have struggled so much, even at the height of Guinness’s popularity, has quite rightly sounded alarm bells.
“The bull case around Diageo was that younger people were drinking less but upping the quality, except higher inflation has meant consumers can’t quite reach the top shelf anymore and are seemingly trading down as well as slowing down,” he added.