Diageo has cut its guidance for its full fiscal year 2026, citing pressures in Chinese white spirits and a soft consumer environment in the US.
In a trading update for the first quarter of its fiscal 2026 today (6 November), the Tanqueray distiller said it expected organic net sales growth “to be flat to slightly down”.
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This was to take account for “the adverse impact from Chinese white spirits and a weaker US consumer environment than originally planned for”.
Diageo had previously forecast organic net sales growth to be “at a similar level” to its fiscal 2025, with growth sitting more in the second half of the year.
The Guinness stout owner had also expected its organic operating profit to grow by “mid-single digit”. It now expects this growth to sit between “low to mid-single digit”. The latest forecast “also includes the impact of tariffs as at this time”, Diageo said.
Commenting on the group’s results, interim CEO Nik Jhangiani said: “We are not satisfied with our current performance and are focused on what we can manage and control; acting with speed to drive efficiencies, prioritising investment and adapting more quickly to an evolving consumer environment.”
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By GlobalDataFor the three months ended 30 September, the Don Julio distiller booked flat organic net sales on 2024, while they declined 2.2% on a reported basis to $4.9bn.
In Diageo’s North America business, organic net sales were down 2.7% at $1.84bn. The unit, which makes up 38% of the company’s total sales, saw its organic net sales being hit by “a challenging environment across consumer goods”.
Though the group said it had prepared for a weaker consumer environment, “the overall spirits market was softer than expected” and saw “increased competitive pressure, particularly in Tequila”.
Organic net sales in US spirits were down 4.1% in the quarter period.
Diageo’s Asia Pacific market recorded a 7.5% drop in organic net sales, reaching $864m. The company attributed the decline in this market to Greater China, which saw a “double-digit” dip in net sales and volumes caused by Chinese white spirits.
The company said that “reduced consumption occasions” in the baiju category, mainly due to “market policy” had a negative impact on net sales in the region and of the wider group.
In today’s update, Diageo also said it was “progressing well” with its cost-savings initiative ‘Accelerate’, which it first laid out in May.
While at the time, the business had initially aimed to achieve $500m in cost savings over the next three years, it subsequently upped that target to $625m in August in a bid to bolster growth.
In today’s trading update, Jhangiani added: “We are well advanced in sharpening our strategy, and we are developing and already implementing clear plans to drive growth across the broader portfolio, ensuring that we meet relevant consumer occasions of the future.
“Early results from our initiatives to strengthen our commercial execution capabilities, notably in Europe, are encouraging, and we are embedding a more rigorous performance-driven culture across the business.”
In a note to clients this morning, Bernstein analyst Trevor Stirling described the results as “a mixed bag”, as the group’s top-line “modestly beat expectations” but was coupled with a guidance cut.
Stirling also pointed out there was still no update on who Diageo’s new CEO might be. Speaking to reporters back in August, Jhangiani had said he expected a decision approaching “the end of October at the latest”.
