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Diageo (DEO) FY25 earnings call: guidance

Earnings call· Jun 2025 (FY25)· Consumer Staples· Aug 5, 2025

Source: earnings call transcript

Executive summary

Diageo FY25 — Organic Sales Growth and Cost Savings Amidst Challenging Market

Diageo navigated a challenging FY25, delivering organic sales growth in line with guidance, but facing profit headwinds from increased overheads and adverse foreign exchange. The company is sharpening its strategy with the Accelerate program, targeting significant cost savings and improved commercial execution to drive sustainable growth. Management remains focused on deleveraging and adapting to evolving consumer trends like moderation.

Highlights

5

  • Delivered 1.7% organic sales growth, or 1.5% excluding the CÎROC transaction, in line with guidance.

  • Achieved $2.7 billion in free cash flow, up $100 million year-over-year, driven by working capital improvement.

  • Increased cash savings target for the Accelerate program to $625 million over 3 years, up from $500 million.

  • Maintained or grew market share in 65% of total net sales in measured markets, including the U.S.

  • Non-alcoholic spirits portfolio grew around 40% for the year, with the acquisition of Ritual Zero Proof.

Concerns

5

  • Organic profit declined 0.7%, or 1% excluding the CÎROC transaction, primarily due to increased overheads.

  • EPS pre-exceptionals declined almost 9%, mainly due to lower contribution from Moët Hennessy and adverse FX.

  • Leverage ratio increased to 3.4x net debt adjusted EBITDA, above the target range of 2.5x to 3x.

  • Recommended full-year dividend is flat on last year, reflecting a prudent approach given the current backdrop.

  • Johnnie Walker saw an organic net sales decline, largely driven by the U.S., Asia Pacific Travel Retail, and Greater China.

Guidance & targets

CategoryTargetConfidence
Organic Net Sales Growth
similar rates to FY25 (approx. 1.5%-1.7%)
high materiality
Medium
Organic Net Sales Growth
slightly negative
medium materiality
Medium
Organic Operating Profit Growth
mid-single-digit
high materiality
Medium
Free Cash Flow
circa $3 billion
high materiality
High
CapEx as percentage of Net Sales
mid-single digits
medium materiality
Medium
Leverage Ratio
well within our target leverage range (2.5x to 3x)
high materiality
High
Accelerate Program Cash Savings
$625 million
high materiality
High
US Tariffs Annualized Impact
circa $200 million
medium materiality
Medium
US Tariffs Mitigation
50%
medium materiality
Medium

Segment performance

SegmentRevenueYoYQoQMargin
North America
Sustained pressure on consumer wallets continued to weigh on spending, but the region delivered positive organic net sales growth and gained TBA share. Focused execution and portfolio prioritization, particularly in tequila and smaller formats, contributed to performance.
U.S. spirits organic net sales growth: 1.6%U.S. spirits price/mix: 2.9%TBA share: gainedDon Julio momentum: strongCrown Royal momentum: strongGuinness organic net sales growth: double-digit
—positive organic net sales growth——

Product announcements

ProductTypeDetails
Casamigos Margarita RTDlaunch
Johnnie Walker Vaultlaunch
Johnnie Walker Blondelaunch
Johnnie Walker Black Rubylaunch
Guinness 0.0expansion
Ritual Zero Proofexpansion

Deals & partnerships

Ritual Zero Proof Acquisition of a non-alcoholic spirits brand.

Acquired the #1 non-alc spirits brand in the U.S., adding to Diageo's non-alcoholic portfolio.

Guinness Nigeria Disposal of Guinness Nigeria.

Disposal contributed to the negative impact from acquisitions and disposals on reported net sales.

CÎROC Closure of a transaction related to CÎROC in North America.

The closure of this transaction provided a benefit to organic net sales and operating profit.

Capital programs

Accelerate Program underway $625 million

Benefit:Cash savings; 50% dropping to operating profit, 50% reinvested

Increased cash savings target from $500 million to $625 million over the next 3 years. Savings are relatively evenly spread, with A&P savings coming earlier, and trade spend optimization/overheads more back-end loaded. Supply chain savings evenly spread.

New Manufacturing and Warehousing Facility announced

Benefit:More efficient and sustainable supply chain, increased agility and resilience in North American supply chain.

Announced in Montgomery, Alabama, to move production closer to customers.

Risks & headwinds

Challenging Market Backdrop FY25

Organic profit declined 0.7% (1% ex-CÎROC)

Mitigation:Sharpening strategy, Accelerate program, focus on commercial execution.

Increased Overheads FY25

Impacted operating profits adversely

Mitigation:Accelerate program focused on cost efficiency and operating model changes.

Adverse Foreign Exchange FY25

Mainly driven by Turkish lira, Brazilian real, and other emerging market currencies; EPS pre-exceptionals declined almost 9% partly due to adverse FX.

Mitigation:Changed policy on hedging to net out anticipated transactional and translational foreign exchange to reduce volatility over time.

Consumer Wallet Pressure Near-term, ongoing

Subdued consumer sentiment; 25% of consumers cite saving money as a top 4 reason for moderation.

Mitigation:Focus on accessible price points (smaller formats), providing range of choices (non-alc, RTDs), adapting to moderation trend.

US Tariffs FY26 onwards

Annualized impact circa $200 million (10% UK, 15% EU imports); expect to mitigate 50% in the first year.

Mitigation:Included in FY26 guidance; mitigation actions planned.

Johnnie Walker Organic Net Sales Decline FY25

Organic net sales decline

Mitigation:Accelerating recruitment through premiumization, scaling innovation, broadening reach to access consumer occasions.

Leverage Ratio Above Target FY25

3.4x net debt adjusted EBITDA, above 2.5x-3x target range.

Mitigation:Commitment to bring leverage well within target range no later than FY28 as part of Accelerate program.

What to watch next

Organic Net Sales Growth Phasing

H1 FY26
Current FY25 organic sales growth 1.7% (1.5% ex-CÎROC)
Target H1 FY26 organic net sales growth slightly negative, with growth skewed to H2

Why it matters

Verifying the expected sequential improvement and second-half skew will indicate if market conditions are evolving as anticipated and if strategic initiatives are gaining traction.

As such, for the first half of fiscal '26, we expect organic net sales growth to be slightly negative with growth skewed to the second half.

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Detailed narrative

Strategic Sharpening and Accelerate Program

Diageo is sharpening its strategy to fully leverage its portfolio and competitive strengths, focusing on accelerating growth in an evolving TBA landscape. The Accelerate program, initially targeting $500 million in cash savings, has been expanded to $625 million over the next three years.

Approximately 50% of these savings will drop to operating profit, with the remaining 50% reinvested into digital capabilities and commercial execution. The program aims to create a more agile, performance-driven organization with simplified ways of working and increased accountability.

Commercial Execution and Marketing Efficiency

A key area of focus is stepping up commercial execution through trade investment optimization, comprehensive mapping and segmentation of the outlet universe, and establishing best-in-class standards for availability and activation at the point of purchase. Marketing efficiency is improving, with non-working A&P costs reduced from 21% in FY24 to around 15% in FY25.

This is achieved through agile brand communities, central content creation, and leveraging AI creativity with virtual content studios, leading to significant cost reductions and faster asset creation.

Evolving TBA Landscape and Moderation

Management acknowledges a challenging macroeconomic environment and subdued consumer sentiment, contributing to increased moderation in TBA consumption, particularly among Gen Z. Diageo views this trend as an opportunity, focusing on providing a range of choices, including non-alcoholic offerings and RTDs, and adapting to evolving consumption occasions. Current research suggests the impact of cannabis and GLP-1s on the sector has not been significant to date.

Regional and Brand Performance Highlights

Despite challenging conditions, Diageo held or grew market share in 65% of its net sales in measured markets. North America delivered positive organic net sales growth, driven by strong performances from Don Julio and Crown Royal, and double-digit growth from Guinness.

India and Africa also contributed positively to growth. Johnnie Walker experienced an organic net sales decline, primarily in the U.S., Asia Pacific Travel Retail, and Greater China, but the company is focused on accelerating its recruitment through premiumization and innovation.

Balance Sheet and Capital Allocation

The company ended the year with closing net debt of $21.9 billion, and a leverage ratio of 3.4x net debt adjusted EBITDA, above its target range of 2.5x to 3x. As part of the Accelerate program, Diageo is committed to bringing leverage down to well within its target range no later than fiscal '28.

The recommended full-year dividend is flat on last year, reflecting a prudent approach, while CapEx is expected to reduce to mid-single digits as a percentage of net sales over the next three years.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.