Diageo announces deeper cost savings after CEO exit as tariffs and sales pressure mount

c Diageo, the global drinks giant behind iconic brands such as Guinness and Johnnie Walker, has unveiled plans to intensify its focus on cost reductions just weeks after the sudden departure of chief executive Debra Crew. The London-based group revealed an increase in its cost-savings target to $625 million over the next three years, up from a previously stated $500 million. This accelerated target comes as the company copes with a $200 million impact from tariffs, which is about $50 million worse than initially forecast.

Roughly half of these savings are to be reinvested in Diageo’s future growth initiatives, while the remainder will directly bolster operating profit. Despite these efforts, Diageo’s shares have been under renewed pressure, falling 24 per cent since the start of the year. A short-term rally saw shares climb 6 per cent in morning trading before moderating gains to 2.2 per cent by lunchtime.

Performance for the 12 months to the end of June showed organic sales up 1.7 per cent to $20.2 billion, outpacing analyst expectations of 1.4 per cent. North America, which now accounts for 39 per cent of total group sales, posted a 1.5 per cent rise in underlying sales, offset by a 0.8 per cent decline in volumes. The Asia Pacific division continued to drag on results, with organic sales down 3.2 per cent owing to a slowdown in the Chinese economy.

Diageo indicated that similar organic sales growth could be expected in the coming year, with operating profit anticipated to rise by a mid-single-digit percentage, inclusive of tariff effects. Trading is likely to improve in the second half, according to company statements.

The business is contending with significant macroeconomic headwinds that are squeezing consumer spending, particularly among younger buyers in Generation Z. With net debt standing at $21.9 billion at the end of June — 3.4 times adjusted profits — Diageo is under market scrutiny to reduce leverage. Asset disposals are being actively considered to help shore up the balance sheet. Free cash flow is forecast to rise to $3 billion this financial year, up from $2.7 billion previously.

On the earnings front, statutory revenue edged down by 0.1 per cent, reflecting the impact of currency movements and costs related to acquisitions. Pre-tax profit fell by 35 per cent to $3.5 billion amid one-off items, including a writedown of the company’s venture capital arm and an impairment of Aviation American Gin. The company has opted to keep the dividend flat at 103.48 cents a share, a move described as prudent given the challenging backdrop.

Nik Jhangiani, previously Diageo’s finance director and now interim chief executive, confirmed that the search for a permanent CEO should conclude by the end of October. Diageo insists it is delivering on its targets but acknowledges the need for continued transformation to restore investor confidence.