Diageo shares surge on $850m cost plan as new chief signals strategy shift
The drinks giant's new chief executive unveiled aggressive cost cuts and a softer premiumisation push after a bruising year.
Diageo shares leapt as much as eight per cent on Thursday after the FTSE 100 spirits maker pledged up to $850 million (£631 million) in cost savings and signalled a shift away from the aggressive premiumisation strategy that backfired when drinkers traded down to cheaper bottles.
The owner of Guinness, Johnnie Walker and Tanqueray reported a three per cent drop in sales to $19.6 billion for the year to end‑June, while operating profit tumbled more than a fifth to just under $2 billion. New chief executive Dave Lewis, who took the helm in January and earned the nickname "Drastic Dave" for his turnaround at Tesco, said the savings would fund a return to profit growth even as the sales decline bottoms out.
Strategy pivot
Lewis acknowledged that the previous premium‑only focus left the group exposed when inflation‑hit consumers switched to value brands. "We remain a business with a very strong premiumisation agenda, but by activating our wider portfolio, we will be able to serve more consumers, across a variety of occasions," he said.
"There is hard work ahead, particularly in North America, where improving performance is a clear priority, but we are confident we can deliver without taking a step back in operating profit."
Regional divergence
The full‑year numbers laid bare the geographic split. Europe grew 5.7 per cent and Latin America surged 16.9 per cent, but Asia fell 8.3 per cent and North America plunged 9.1 per cent. A $1.5 billion impairment, mostly tied to the Turkish operation, further weighed on the bottom line.
Market reaction
Analysts viewed the dividend slash as a necessary clearing of the decks. Chris Beauchamp, chief market analyst at IG, said the market had already priced in a similar reduction at the half‑year stage. "Now comes the hard part, convincing and then showing investors that the turnaround plan is going to pay off," he added.
With the cost programme under way and a more flexible portfolio strategy in place, Diageo has bought itself breathing room. The next 12 months will show whether Lewis can turn that room into sustainable growth.
