Holders of Diageo (LSE:DGE) shares haven’t had much to cheer about in recent years. The company has felt like a FTSE 100 tanker with holes in its underside, ploughing on across rough seas as more and more value drained away.
The share price performance says it all. Since peaking at 4,036p on New Year’s Eve 2021 — a somewhat ironic date for the world’s largest seller of spirits — it has crashed 59%.
Yet for the first time in years there’s a growing sense that a revival might be possible under turnaround specialist CEO Dave Lewis. As a result, Diageo stock is up almost 25% from a 52-week low in March.
And tomorrow (6 August), the recovery story will face its first proper test, with Lewis expected to flesh out some of his plans at the company’s Capital Markets Day. Oh, and the firm will also report its FY26 results, so this is a key date for shareholders.
What can investors expect to hear tomorrow?
Rightsizing the tanker
We already have some idea of what to expect from the full-year results. Revenue of $20.2bn, with organic net sales down by 2% to 3%. And core operating profit to be flat at around $5.7bn, or perhaps a little higher, helped by $300m in cost savings from Diageo’s Accelerate programme.
As for the turnaround, we’ve also had a flavour of what’s to come. In recent months, there have been non-core asset sales, a focus on balance sheet deleveraging, and reports of organisational restructuring.
Some key developments include:
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The sale of East African Breweries for net proceeds after tax and transaction costs of $2.3bn.
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Likely sale of Royal Challengers Bengaluru (the Indian cricket franchise).
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Dividend slashed to retain cash flow for debt reduction.
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Some product price reductions to become more competitive.
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Reports of 30% headcount reductions in some Diageo teams.
Of course, it’s never nice to hear of big potential job cuts. But Lewis has been brought in as an outsider to make tough calls to rightsize the tanker.
What about future growth?
As a shareholder, I don’t expect anything dramatic for FY27, which is likely to be a transition year. Sales could remain under pressure. But I’ll be keen to hear what plans there are for reviving growth over the medium term.
Perhaps brewing capacity for Guinness, which continues to grow at double digits, will be expanded. Non-alcoholic variants like Guinness 0.0 and Tanqueray 0.0 could be accelerated to capture younger, health-conscious consumers.
We already know not having a big enough presence in the ready-to-drink (RTD) category — Smirnoff and Captain Morgan canned cocktails, for example — has been a bit of an own goal. Given Lewis’s Tesco background, I imagine getting more RTDs on supermarket shelves will be a priority.
I’ll also be interested to learn about plans for the tequila category moving forward. This was touted as a key global growth opportunity in years gone by, but flagship brands Casamigos and Don Julio have been losing market share in North America.
Even after the dividend cut, Diageo yields around 3%, and the valuation looks pretty cheap. That’s why I think it’s worth considering for patient investors who believe in the medium-term turnaround potential.
All eyes peeled for tomorrow.
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Ben McPoland owns shares in Diageo.
The post Diageo shareholders, mark your calendars for 6 August appeared first on The Twelfth Magpie.
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