Feb 25 (Reuters) - Diageo lowered its annual sales forecast for the second time in almost four months and cut its dividend on Wednesday, as its first results under new boss Dave Lewis showed weak U.S.
Diageo CEO Initiates Major Overhaul with Dividend and Forecast Reductions
By Emma Rumney and Shashwat Awasthi
LONDON/BENGALURU, Feb 25 (Reuters) - Diageo's new boss Dave Lewis cut the company's annual sales forecast and dividend in his first results presentation on Wednesday, sending its shares down 6% and underscoring the scale of his task to turn around the world's biggest spirits maker.
Leadership Changes and Strategic Shifts
Lewis, nicknamed "Drastic Dave" for his history of cost-cutting reforms at Tesco and Unilever, took over as CEO at the Johnnie Walker whisky and Guinness beer maker in January.
Announcing six-month earnings, Diageo said it expects 2026 organic sales to fall 2%-3% and halved its interim dividend to 20 cents per share, with Lewis saying the business needed investments to make it more competitive and resolve capacity constraints on Guinness' growth.
Following years of stagnant or falling sales and growing investor unease, Lewis needs to reduce debt and revive growth, despite tariff-related uncertainty, fragile global consumer sentiment, and evolving drinking preferences among some consumers.
Challenges in Consumer Spending
CONSUMER SPENDING POWER IS THE BIGGEST ISSUE
Pressure on consumer wallets was "by far and away" the biggest challenge, Lewis said in a presentation.
The rise of weight loss drugs, which research indicates can reduce the desire for alcohol, changing lifestyles and alternatives, such as legal cannabis, also had an impact, he said, but that this was small for now.
Market Reactions and Future Plans
Lewis plans to present a full, updated strategy to the board in the second quarter and share it publicly in the third.
Diageo's announcement, together with its disappointing earnings, triggered share price declines across the sector. Peers Pernod Ricard, Remy Cointreau and Campari Group also fell by around 3%.
In the last six months, Diageo suffered deep sales declines in the Chinese and U.S. markets in particular, including in previous growth engine tequila.
"There is no point trying to dress up the six-month figures. These are awful results, and the repair job is massive," said Dan Coatsworth, head of markets at AJ Bell, adding it was up to Lewis to formulate a plan.
Cost-Cutting and Market Strategy
Lewis said Diageo was underrepresented in cheaper, mass-market spirits and could also lower prices on some of its brands. He added the company needed to focus on customer service where it had been "really very poor" in some cases. The company already cut jobs in the first half.
The maker of Smirnoff Vodka and Captain Morgan rum has already launched a plan to sell assets and cut costs to try to raise cash and reduce debt, which has doubled since 2017 and stood at 3.4 times adjusted operating profit in the first six months - above Diageo's target range.
(Reporting by Shashwat Awasthi and Aatrayee Chatterjee in Bengaluru, Emma Rumney in London; Editing by Mrigank Dhaniwala, Lisa Jucca and Barbara Lewis)
