Diageo PLC (LSE:DGE) will be closely watched when it reports first-half results, after its shares slid to a decade low last year and ex-Tesco boss Sir Dave Lewis was appointed chief executive to lead a turnaround.
The Guinness and Johnnie Walker maker was top of many people's lists as a potential rebound story for 2026, and interim numbers on 25 February will provide a first look at what plans are in place from the CEO once known as 'Drastic Dave' for his preference for aggressive cost-cutting and streamlining operations. Some analysts suggest a dividend cut could be on the table.
Lewis, who brings 28 years of brand-building experience at Unilever before his time at Tesco "will come in handy" as he refreshes the growth strategy and portfolio, analysts at Jefferies said.
They think he needs an "all-weather" strategy to drive performance through uncertain conditions, including a cultural reset, better execution at the point of sale, renewed focus on affordability and brand diversity, and exploiting formats like RTDs and no-alcohol products.
Jefferies believes the focus should be more on driving cash generation, including selective disposals or even a dividend reset that would show investors a more aggressive operational reset is on the table.
The FTSE 100 drinks group is expected to post a weak top line for the second quarter, with analysts at UBS forecasting organic revenue down 4.3%, driven by continued pressure in North America and Asia-Pacific.
Jefferies' forecasts Q2 sales down 4.7%, leading to H1 organic sales declining 2.6%, with EBIT falling 6.6% – slightly steeper than other broker estimates, reinforcing the pressure from weak US and APAC trading.
North America is seen as "very weak" by UBS, with an "increasingly tough" pricing and promotional environment in tequila, as well as US spirits demand deteriorating further, and a more competitive pricing environment weighing on volumes.
China remains very weak, particularly in baijiu. A recent Bloomberg reports that Diageo is mulling its future in China, despite industry reports hailing its rare position for a Western company of having built a "significant and credible presence" via its 63% stake in Shanghai-listed Sichuan Swellfun.
Overall, a key point will be whether Lewis maintains full-year guidance for 'low- to mid-single-digit' organic EBIT growth, with UBS analysts not expecting a change, but the City consensus currently anticipating earnings will be flat or just below.
Looking to the second half, the potential for a sharp recovery is helped by easier US comparisons, the phasing of Chinese New Year, additional Guinness capacity, and increased ready-to-drink innovation, UBS said.
Europe is expected to be a relative bright spot, with strong momentum in Guinness and benefits from improved on-trade execution. Cost savings are also skewed to the second half, supporting margins later in the year.
At around 14 times forward earnings, Diageo shares trade at trough valuation levels versus European staples, reflecting investor caution ahead of what is shaping up to be a pivotal period under new leadership.