Diageo cuts outlook and slashes dividend as new boss takes the reins

Guinness and Johnnie Walker drinks giant Diageo has cut its outlook once again and slashed the firm’s shareholder dividend payout as new boss Sir Dave Lewis said the group needed to “act more decisively” to boost its flagging performance.

The former Tesco chief executive – who took on the role at the start of the year – said there was “significant work ahead” in turning Diageo around as the group reported a 2.8% drop in underlying operating profits to 3.26 billion dollars (£2.4 billion) for the six months to December 31 as underlying sales also fell 2.8%.

The firm downgraded its full-year guidance for the second time in three months, with sales now expected to fall by 2% to 3% because of ongoing sales troubles in the US and earnings predicted to be flat to a low-single-digit rise.

Diageo is ramping up cost savings and now expects around 50% of its cuts in the current financial year.

In a blow to investors, the group said it was more than halving its interim dividend, sending shares down more than 5% in morning trading on Wednesday.

Sir Dave is working on an updated strategy for the group, which will be unveiled later in the summer.

He said: “Only several weeks in I can already see significant opportunities for Diageo to act more decisively to enhance its competitiveness and broaden the portfolio offering leading to higher growth.

“To deliver on these opportunities, we need to create more financial flexibility.

“Accordingly, the board has taken the difficult decision to reduce the dividend to a more appropriate level which will accelerate the strengthening of our balance sheet.

“We are confident that this is the right action which will ensure that Diageo can reinforce its position as the leading international spirits business and drive stronger shareholder value over the coming years.”

Sir Dave took over from chief financial officer Nik Jhangiani, who had been acting as interim chief executive since Debra Crew resigned abruptly in July last year.

The bosses said there would be “no firesale” of brands amid speculation in recent weeks over plans to offload parts of the business to shore up its balance sheet.

Sir Dave confirmed the group was “not sellers” of Guinness or its stake in Moet Hennessy, but said the firm would consider approaches for non-core brands or assets.

On a call with analysts, he said there was significant room for an overhaul of how the group operates, saying its customer service levels were “not acceptable”.

He also revealed that 65% of orders worldwide for customers were still made manually, saying the group’s systems were “far behind” where they should be.

Julie Palmer, managing partner at BTG, formerly known as Begbies Traynor, said: “All eyes will be on Diageo’s new chief to bring a rebound to growth in this market that has slumped significantly since the post-pandemic boom and continues to be battered by rising energy, ingredient, employer, tariff costs as well as a consumer slide away from alcohol, which has knocked the spirits of investors.”

She added: “To drive the desired profitability and strengthen cashflow in the long-term, focus will need to go on moving with changing consumer habits towards cheaper products and low or no alcohol drinks, and reducing inefficiencies across the business to save as many costs as possible.”