By a Correspondent
Diageo PLC (LSE:DGE) shares results for the past year beat forecasts, thanks to a stronger performance in the fourth quarter, with analysts saying the new outlook for 2026 was also ahead of expectations.
The guidance for the year to June next year was better than current forecasts on the top- and bottom-line, UBS said, with “the scale of the cost saving/margin ambition […] greater than expected”.
All in, the new outlook from the Smirnoff and Jonnie Walker maker implies between 1-3% upside to the current consensus earnings per share. Shares in the FTSE 100 group spiked 7.5% in early trade but by midday saw this diluted to a 1.9% gain at 1,849p.
While the ‘visibility’ of sales in the spirits industry remains low, UBS said, “Diageo is focusing on controlling the controllables, which should give investors better earnings visibility and support the share price”.
Analysts at Jefferies agreed that guidance for EBIT was ahead, mid-single-digit versus 2.6%.
“We would expect shares to be better today as the business doubles down on the controllables. As recovery becomes visible, we would expect leverage through the i/s [income statement], improving FCF [fre cash flow] and better returns, which will allow the shares to rerate to north of 20x PE”.
Diageo’s interim CEO Nik Jhiangiani also said the cost savings target under the Accelerate strategy programme has been increased to $625 million from $500 million.
UBS noted that this will be spread evenly over 2026-28, with around 50% to drop through to the bottom line and capex is expected to moderate to mid-single-digits percentage over three years.
Freetrade analyst Alex Pugh noted that tariff headwinds had been seen, with tequila and Canada’s Crown Royal whisky hit by US trade policies and responses.
“Despite landing in line with guidance, Diageo’s FY25 results reflect a business caught between past prestige and an uncertain future,” Pugh said.
“With growth expected to remain sluggish in H126 before picking up in H226, the next year won’t be smooth sailing.”
He noted Diageo is responding to a changing drinks market too, “one with more teetotallers, more calorie counters, and more GLP-1 users.
“The firm is leaning harder into premium labels, where margins are fatter and demand is steadier. That’s been a slow but steady shift: high-end spirits now make up 30% of US net sales, up from just 6% in 2017.”
