Diageo (NYSE:DEO) executives told investors its fiscal 2026 interim results were “mixed,” pointing to encouraging performance in Latin America, Europe, and Africa that was offset by weakness in Chinese white spirits and North America. Chief Executive Officer Dave Lewis, speaking seven weeks into the role, said the company has set three immediate priorities and is conducting a broader strategy review that it expects to complete in calendar Q2 before sharing an update with the market.
Lewis also addressed a key headline from the release: a change in dividend policy. He said the board’s decision was driven by a need to invest in the competitiveness of the business—particularly the portfolio—while also funding capacity investments (especially for Guinness) and capability improvements, alongside efforts to rebuild the balance sheet with urgency.
Dividend policy change framed as creating “space” to invest
Chief Financial Officer Nik Jhangiani added that the board’s payout decision was influenced by a faster deterioration in U.S. spirits affordability than the company had expected. He said the company wanted “space and flexibility” to invest in the business and emphasized that management’s commitment to strong cash generation is unchanged. Jhangiani said the payout ratio range provides flexibility and indicated it would “probably” start toward the lower end of the range.
Lewis also cited capital allocation needs, saying the company believes sell-side expectations for CapEx are “on the low side,” reflecting Diageo’s desire to invest in Guinness capacity and in capabilities. The dividend policy update, he said, is intended to support both investment and faster balance sheet rebuilding.
North America focus: selective price repositioning and portfolio gaps
Management repeatedly highlighted North America as an area requiring action. Lewis said Diageo’s portfolio is strong at the premium end but is underrepresented in higher-volume parts of the market, and suggested that improving competitiveness may require selective price repositioning and potentially reactivating brands that have not been emphasized recently.
Lewis stressed that any price repositioning would be “surgical,” targeted by brand, pack size, market, channel, and guided by “price pack architecture” and category management. He acknowledged the company still needs more market-specific work on price elasticity and said that analysis will be completed as part of the strategy update.
He also cautioned that changes take time in the U.S. system and said investors should not expect “meaningful” changes in the U.S. plan over the next six months, noting that second-half activity is already set and that FIFA-related plans are embedded with customers.
On margins, Lewis said portfolio actions to improve competitiveness in North America could put downward pressure on percentage margins in fiscal 2027, but that the goal is to increase the “quantum” of gross profit through higher volumes, even if percentage margins dilute.
Jhangiani pointed to tequila as an example, saying Casamigos has been competing at the top end and that there is an opportunity to reposition it “smartly and surgically” across channels and occasions. He cited work in Florida as having had a positive impact and highlighted execution issues such as Casamigos being in “lockbox,” which he said affects shoppers’ propensity to buy—an area the company wants to address with retailers.
Operating framework redesign: agility, customer execution, and cost to serve
Lewis said Diageo sees significant opportunity to rethink its operating framework and “go to market,” aiming to improve competitiveness, agility, and the deployment of resources. While he referenced efficiency opportunities, he framed the operating framework redesign as broader than cost cutting, describing it as a way to make the organization more capable, faster, and more agile.
When asked about ready-to-drink (RTD) urgency and potential near-term launches, Lewis said innovation plans for the next six months are largely set and should not be expected to change materially based on the day’s commentary.
On the Accelerate savings program, Lewis said Diageo expects to deliver 50% of a £625 million target this year and has already achieved 40% of that 50% in the first half. He indicated that ongoing efficiency efforts could be incorporated into a broader operating framework review that would be shared in 2027.
A major theme in the Q&A was customer execution. Lewis relayed feedback from his prior experience as a retailer customer that Diageo’s brand portfolio was admired, but customer engagement and operational processes were not “best in class.” He said that after joining Diageo, he believes the company has not invested enough in customer relationships, systems, or processes, citing that “65%” of customer orders globally are entered manually. Lewis said improving transactional engagement should lower the cost to serve and free up cash, while a more category-led approach could deepen partnerships by helping customers grow their categories.
Portfolio and disposals: “no firesale,” non-core exits in progress
On strategic reviews and potential disposals, Lewis and Jhangiani said the company will not sell assets below fair value and will not comment on speculation. Lewis said Diageo is not “actively out in the marketplace hawking” brands and intends to strengthen the balance sheet primarily through the actions already outlined rather than through speculative sales.
Jhangiani confirmed progress on exiting certain non-core businesses, referencing an announcement related to EABL and noting that United Spirits Limited (USL) is conducting a strategic review of Royal Challengers Bangalore (RCB). He said Diageo does not need to own a cricket club as it is not core to the business, and that the process is “in train and in progress.” Both executives reiterated prior statements that Diageo is not a seller of Guinness and Moët Hennessy, and said that position “still stands.”
Guinness capacity constraints and investment needs
Lewis said he is “very impressed” with Guinness and described its opportunity set as “a very full locker,” but emphasized that the brand currently faces capacity constraints, including for Guinness 0.0. He said customer service levels shown in the presentation were “not acceptable,” and noted that a concentrated set of markets accounts for the majority of Guinness volumes. Lewis said Diageo needs to address capacity before it can fully pursue additional geographic opportunities.
Jhangiani added that some capacity will come on in the second half (with a particular reference to Q4), but said it will not be enough for the next two or three years given the growth being seen, and that further investment is needed to support the opportunity and associated gross profit growth.
Lewis also touched on category shifts and the need to think beyond percentage margins in some segments, using RTDs as an example where cost-to-serve and total gross profit could change the profitability lens. “You don’t take percentages to the bank, you take cash to the bank,” he said.
Finally, Lewis said he is prioritizing a thorough strategy process rather than rushing an update, describing upcoming travel and deeper engagement with management and the board before sharing conclusions with investors. He said Diageo’s internal energy is high, but that the organization needs to become clearer and more agile, with stronger category thinking and customer focus.
About Diageo (NYSE:DEO)
Diageo plc 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.
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