Diageo has blamed weakness in Chinese white spirits and “a softer US consumer environment” for failing to return to organic net sales growth in its financial first quarter.
The Johnnie Walker brand owner reported flat organic net sales growth in the three months to the end of September, with volume growth of 2.9%. Analysts had expected sales to decline by around 1.3%.
Diageo interim CEO Nik Jhangiani said: “We are not satisfied with our current performance and are focused on what we can manage and control; acting with speed to drive efficiencies, prioritising investment and adapting more quickly to an evolving consumer environment.”
While sales growth was achieved in Europe, Latin America & Caribbean and Africa, there were declines in both North America and Asia Pacific, driven by “weak consumer confidence” and “weakness in Chinese white spirits” respectively, Diageo said.
In the US, spirits sales slid by 4.1% on an organic basis. “The overall spirits market was softer than expected, with increased competitive pressure, particularly in tequila,” Diageo noted. Tequila category growth had slowed to around 3%, and consumers were trading down from Diageo’s super-premium labels, as well as switching out to cheaper RTDs, management admitted.
European sales, meanwhile, climbed by 3.5% driven by “sustained strong momentum in Guinness” and “strong performance in Türkiye”. Sales in Asia Pacific were down by 7.5%, attributed to “double-digit decline in both volume and net sales” in Greater China.
In a slight downgrade to guidance Diageo said it now expects organic net sales growth for FY26 to be “flat to slightly down” – compared to the flat sales it forecast following its FY25 results in the summer.
Organic operating profit growth, meanwhile, is now expected to be in the “low to mid-single-digit”, down from the mid-single-digit growth previously forecast.
Tariff guidance remained unchanged, with Diageo forecasting a circa $200m annualised impact before any mitigation.
The Tanqueray distiller reiterated its intention to deliver around $3bn free cashflow in FY26, supported by an ambitious $625m, three-year cost-cutting programme and “appropriate and selective disposals”. Some 40% of the projected cost-savings are now expected to be realised in FY26.
“We are well advanced in sharpening our strategy, and we are developing and already implementing clear plans to drive growth across the broader portfolio, ensuring that we meet relevant consumer occasions of the future,” said Jhangiani. “Early results from our initiatives to strengthen our commercial execution capabilities, notably in Europe, are encouraging, and we are embedding a more rigorous performance-driven culture across the business.”
No update was provided on Diageo’s search for a permanent replacement for its former CEO Debra Crew, who exited by mutual agreement in July.
The results were “a mixed bag” said analysts at Bernstein, highlighing the beat to analysts’ sales forecasts but cautioning there remained “pain points” in the US and China.
Diageo shares fell by 2.9% in early morning trading.
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