ii view: could Zero be hero at drinks giant Diageo?

Full-year results to 30 June

• Net sales down 0.1% to $20.25 billion (£15 billion)
• Operating profit down 27.8% to $4.34 billion (£3.21 billion)
• Net debt of $21.9 billion, up from $21 billion a year ago
• Final dividend of 62.98 US cents per share
• Total dividend for the year unchanged at 103.48 US cents per share

Guidance:

• Expects year ahead 2026 organic sales similar to the 1.7% growth achieved in 2025
• Expects mid-single-digit growth in organic operating profit, including the impact of tariffs at the time of reporting

Interim chief executive Nik Jhangiani said:

“I am pleased to report on our fiscal 25 results which in a challenging year, were in line with our guidance. We delivered 1.7% organic net sales growth reflecting the strength of our portfolio and our diversified footprint. 

“While macroeconomic uncertainty and the resulting pressure on consumers continues to weigh on the spirits sector, we believe in the attractive long-term fundamentals of our industry and in our ability to continue to outperform as the TBA (Total Beverage Alcohol) landscape evolves. We are focused on what we can manage and control and executing at pace. The Board and management are committed to delivering improved financial performance and stronger shareholder returns on a sustained basis.”

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

ii round-up:

Diageo (LSE:DGE) is the world's largest premium spirits company with an estimated 30% share of the global premium spirits’ market. 

Spirits generate most sales at 79%, followed by beer at 16%, pre-mixed or Ready-to-drink products 3.5% and other items a balance of 1%.   

For a round-up of these latest results announced on 5 August, please click here.

ii view: 

Formed via a merger of Grand Metropolitan and Guinness in 1997, today Diageo sells more than 200 drink brands in almost 180 countries. Brands include Johnnie Walker whiskey, Smirnoff vodka, Captain Morgan rum, Don Julio tequila, Bailey’s cream liqueur and Guinness stout.  

Geographically, North America accounts for its biggest slug of sales at 40%, followed by Europe at 24%, Asia Pacific at 18% and both Latin America and the Caribbean, and Africa, 9% each. The FTSE 100 company also owns a 34% stake in Moët Hennessy and 55% of United Spirits in India.

For investors, concerns over changing drinking habits and consumer moderation are an overhang. Trade tariffs now raise the cost of its products across its core US marketplace. Stretched consumer spending globally may be pushing some customers to downgrade to cheaper supermarket-own brands. Group net debt rose over this latest financial year, while ethical concerns regarding alcoholic consumption may also deter some investors.  

• Stock pickers strike back as value investing returns
• Huge month for dividends as Lloyds Bank, BP, Shell, L&G pay out
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

More favourably, non-alcoholic organic net sales rose 40% over this latest financial year, with its portfolio of non-alcoholic spirits more than four times the size of its nearest competitor and Guinness Zero achieving double-digit sales growth. Targeted cost savings have been raised to $625 million from $500 million, with around half of that expected to be reinvested back into the business. Non-core business sales remain a possibility, while current interim CEO has experience at Coca-Cola, with any new further appointments inevitably looking to reinvigorate group strategy. 

On balance, risk clearly persists with performance at its core North American business remaining central. That said, a forecast dividend yield of around 3.7% is paying investors to be patient, while a consensus analyst fair value estimate above £23 per share points to cautious optimism in the City. 

Positives: 

• Stable of diverse and well-known drink brands
• Market leader in non-alcoholic spirits 

Negatives:

• Uncertain economic outlook
• Exposure to currency risk

The average rating of stock market analysts:

Buy