Drinks giant Diageo, the maker of Guinness and Johnnie Walker, has downgraded its financial outlook again and more than halved its interim dividend, as new chief executive Dave Lewis pledged to take firmer action to revive performance.
Sir Dave, the former Tesco chief executive who took the helm at the start of the year, said there was “significant work ahead” in turning around the FTSE-listed group.
For the six months to December 31, Diageo reported a 2.8% drop in underlying operating profits to 3.26 billion dollars (£2.4 billion) with 2.8% decline in underlying sales.
The results underline continued pressure on the company’s core markets, particularly in the United States, where consumer demand has weakened, and inventory adjustments have weighed on performance.
Given the ongoing trading challenges, Diageo has now downgraded its full-year guidance for the second time in three months, and the company is outlining specific strategic initiatives to improve future performance.
Sales are expected to fall 2% to 3% for the year, and earnings are forecast to be flat or rise only in the low single digits.
The revision reflects ongoing trading challenges in the US, Diageo’s largest market, and the company is exploring targeted strategies to counteract softer demand and inventory issues in this region.
The group is proactively implementing cost-saving measures and now expects to deliver around 50% of its planned savings in the current financial year, demonstrating a commitment to strategic management.
Sir Dave emphasised the importance of transparent and decisive actions to stabilise performance and rebuild investor confidence, aiming to foster trust during this challenging period.
In a move likely to disappoint investors, Diageo said it would more than halve its interim dividend, primarily to strengthen its balance sheet and fund restructuring efforts, signalling a cautious approach to cash returns.
The dividend cut marks a significant shift for a company long viewed as a dependable income stock, and highlights the scale of the turnaround challenge facing its new leadership.
Sir Dave 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.”
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