Diageo plc DEO

The business

Diageo sells premium alcohol: scotch (Johnnie Walker), tequila (Don Julio, Casamigos), vodka (Smirnoff, Ketel One), gin (Tanqueray), rum (Captain Morgan), Canadian whisky (Crown Royal), the Baileys liqueur, and Guinness beer, into roughly 180 markets through a mix of on-trade (bars, restaurants) and off-trade (retail) channels. Spirits carry the franchise at about 80% of net sales, with beer (mostly Guinness) most of the rest. Geographically, North America is the largest single pool at roughly 40% of net sales and the largest slice of operating profit, which is why the region's weakness dominates the current story; India, Africa and parts of Latin America are the structural growth end. Within spirits, scotch and tequila are the key value drivers, and tequila had been the growth engine, with Don Julio still compounding hard (organic net sales up about 28% in FY2025) even as Casamigos gave back roughly 16% in the same year.

The qualitative reality the headline financials hide is that this is a company working through a demand shock layered on a destocking shock. After the COVID-era boom, distributors across Latin America and the Caribbean were left over-inventoried, which triggered a November 2023 profit warning that management did not see coming and that reset the Street's trust. On top of that sits a genuine secular debate: younger consumers are moderating alcohol intake, and GLP-1 weight-loss drugs raise a real question about long-run consumption volumes. US tariff policy on imported scotch and tequila is a live cost and pricing risk, since those categories cannot be re-shored (scotch must be made in Scotland, tequila in Mexico). The long-run bull mechanism is premiumization, consumers trading up to fewer, better drinks, which has driven price/mix for a decade. The last twelve months added leadership upheaval: CEO Debra Crew departed in July 2025 after the shares fell about 44% on her watch, CFO Nik Jhangiani ran the company on an interim basis, and Sir Dave Lewis, the former Tesco turnaround chief, took over as CEO on January 1, 2026, pairing a $500M "Accelerate" cost-savings program (targeted through FY2028) with asset sales and, at the February 2026 interim, a roughly halved dividend.