Investors in Diageo rushed for the exit as the scale of the challenge facing Dave Lewis was laid bare following the new CEO’s maiden set of results.
Lewis, who has been in the job for less than two months, threw the kitchen sink at the spirits giant in a bid to pave the way for a mammoth turnaround mission.
But shareholders reacted in horror as the Guinness maker cut the dividend, slashed its financial outlook and missed growth expectations.
Lewis, who will lay out his full action plan later in the year, also signalled his intention to lower prices to make Diageo more competitive. The City worried about the potential for a price war and a subsequent hit to margins.
Lewis’ first public remarks came after Diageo posted a 2.8% drop in organic sales in the six months to 31 October, which was worse than analysts feared. The company also downgraded profit and sales expectations for 2026 on the back of struggles in the US and China.
And the annual dividend was set at a minimum of 50 cents for FY26 and beyond, compared with 103.5 cents in the previous year. Trevor Stirling of Bernstein expected the move to free up £1bn of cashflow.
Overall, shares recorded their biggest one-day fall in the aftermath on Wednesday, tumbling by as much as 13%. The stock continued its decline today, heading back towards the all-time lows of 1,589p seen at the end of 2025. It means more than £12bn has been wiped off the value of the group in the past year as the share price sank by a quarter following profit warnings and an exit for former boss Debra Crew.
Dan Coatsworth, head of markets at AJ Bell, said Lewis would need “a stiff drink” after presenting his first set of results.
“There is no point trying to dress up the six-month figures,” he added. “These are awful results, and the repair job is massive.”
In his first presentation since taking the helm on 1 January, Lewis slammed customer service levels for Diageo’s retailer customers as “very poor” and signalled further investment for mainstream brands such as Captain Morgan and Smirnoff.
He also told analysts he intended to make selective price cuts as its premium brands failed to appeal to the mass market at a time of low consumer confidence. He admitted this would hurt margins but boost volumes.
It’s a similar playbook to the one applied by Lewis when he took over at Tesco, where he tried to narrow the price gap between the major mult and the discounters.
Stirling said Lewis was at pains to explain to analysts how slightly lower margins could be traded for higher growth, with an end result that was accretive to profit and earnings per share growth.
“However, the market is clearly worried about a potential broad-based price-war, a spirits Armageddon akin to Marlboro Friday [a reference to a dramatic 20% price cut on cigarettes made by Philip Morris in 1993 as it battled competition from cheaper brands, which led to $10bn being erased from the stock value],” he added.
Laurence Whyatt of Barclays reckoned the share sell-off was “overdone” and that Lewis has now “got all of the bad news out of the way”.
“Management was explicit that Diageo’s portfolio has become overly concentrated at the premium end, particularly in the US, leaving it underrepresented in volume segments,” he said.
“Sir Dave’s first outing laid out a credible reset focused on cash, competitiveness and broader consumer reach.”
Lewis emphasised Diageo was not actively selling any major brands and would only do so “if appropriate”, with Guinness and Hennessy explicitly reaffirmed as not on the block.
Whyatt said the stance was pragmatic. Non-core assets will be exited at fair value, but there will be no fire sale to plug balance sheet gaps,” the Barclays analyst added.
Guinness – along with Johnnie Walker – was a rare bright spot in the first-half results for Diageo, with organic sales growth of 10.9%.
Lewis called Guinness a “phenomenal asset” and pledged to boost investment behind the stout’s capacity
“Lewis has only been in the top job for a matter of weeks and it’s too early for him to formulate a proper plan,” said Coatsworth of AJ Bell. “For now, investors will have to put faith in his ability to sort things out. He’ll be under pressure to fix Diageo fast, yet he’s more likely to say, ‘good things come to those who wait’.”
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