Diageo beats expectations as early signs of turnaround emerge
Diageo has delivered better-than-expected quarterly results under chief executive Sir Dave Lewis, suggesting early progress in its turnaround efforts. Growth in key regions offset continued weakness in North America, boosting investor confidence.
Is Sir Dave Lewis already giving Diageo a good shaking?
He has still to announce his full plans for reviving the world’s biggest premium alcohol group, but his first three months in the chief executive’s hot seat have generated results that beat most expectations.
In the three months to the end of March, Diageo chalked up 0.3% growth in organic net sales to US$4.5 billion with volumes up 0.4%. Analysts had expected a 2.3% decline in organic net sales for the quarter.
Share price responds positively
The news boosted Diageo shares, which rose by 5% in early trading in London to £15.40. Five years ago, they stood at more than £40.
The company said its better-than-predicted performance had been driven by strong demand in Europe, Latin America and the Caribbean and Africa. There had also been a boost from the timing of the Chinese New Year and the initial sell-in to customers in advance of the World Cup in June.
North America remains a challenge
However, in its biggest market, North America, sales continued to decline, this time by “high single digits.” Even so, the organic sales decline of 9.4% in the region was better than analysts had forecast.
Asia Pacific net sales declined slightly with weakness in Chinese white spirits offsetting low single-digit growth in international premium spirits.
“North America remains our biggest challenge, where market conditions are soft and our offer needs to be more competitive. Actions are already underway to address this,” said Lewis.
Strategy update expected later this year
There had been hopes that he would lay out his plans for reviving Diageo, but he confirmed that they would be revealed when he presents full-year results in August.
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The positive sales figures allowed Diageo to maintain its fiscal 2026 forecast, but it said it was mindful of the impact of the ongoing conflict in the Middle East on energy, supply and distribution.
The company expects flat to up low single-digit organic operating profits in the full year, including cost savings of about $300m from its Accelerate programme, which it says is “on track”.
Focus on restructuring and growth
In February Diageo had warned that its full-year organic sales would fall by between 2% and 3%. At that time Lewis laid the groundwork for extensive change when he halved the dividend and warned that the group needed a much-improved focus on customer demands.
Although playing most of his cards closely to his chest, it is widely expected that Lewis will slim down regional management, cut prices and margins to boost sales and cash flow and introduce a renewed drive into the growing market for canned cocktails.
RTD market offers opportunity
Competition is fierce in the RTD market, which is worth over £300m, according to market researchers Worldpanel by Numerator. Sales have grown over 17% in two years.
One of Lewis’s main criticisms of Diageo is that it “created this category” when it launched Smirnoff Ice in 1999. But Diageo’s share of the RTD market has fallen from a peak of 25% in 2008 to below 10% today.
Wider market pressures persist
The National Alcohol Beverage Control Association in the US says total alcohol sales were down 2.8% in 2025, while volumes declined 1.4%.
Excluding prepared cocktails, the picture was weaker, with value down 3.5% and volumes 3.2% lower.
By contrast, pre-prepared cocktails have been growing strongly, with the segment accounting for around 9% of industry volumes and 3% of value last year.
Canned and carton cocktail sales values rose 23.2% in 2025, with volumes up 22.6%.
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