Diageo PLC (LSE:DGE) may deliver reassuring results at its interims next month, but the outlook remains fragile as the spirits sector continues to grapple with structural headwinds, according to JPMorgan.
In a note addressing the recent rebound in spirits shares, analyst Celine Pannuti said the bounce follows a tough 2025, where the sector fell 29% against a 3% gain for European staples.
While some investors see signs of a bottom, JPMorgan remains cautious, highlighting negative price/mix trends and ongoing pressure on margins. It is not alone on this.
The bank maintained a 'neutral' rating on the FTSE 100 drinks company, noting that upcoming earnings could offer short-term reassurance.
However, risks remain as the maker of brands including from Johnnie Walker, Gordon's, Smirnoff, Ciroc and Lagavulin, continues to reposition under its new chief executive Dave Lewis, ex of Tesco.
Wider issues for the spirits subsector include slow progress on destocking, potential need for price adjustments to reignite demand, and investment requirements to compete in emerging categories such as ready-to-drink and low/no alcohol alternatives.
“We still see downside to consensus,” Pannuti wrote, referring to the sector as a whole, citing optimistic assumptions for like-for-like sales and margin expansion in 2026.
JPMorgan prefers exposure to categories with stronger pricing power and free cash flow visibility, such as beer and tobacco.
While the stance on Diageo remains noncommittal, the bank is more cautious on peers Pernod Ricard and Rémy Cointreau, which it sees as most vulnerable to earnings downgrades.