This is an old version of DEO from 6 days ago (Nov 7, 2026).See the latest version
DEO
- Price
- $97.70
- Discount category
- Close to intrinsic value
- Next earnings
- Feb 5, 2027
- Next earnings is estimate
- Yes
- Company name
- Diageo
- Sector
- Beverages (spirits & beer)
- About
- Diageo is a global leader in beverage alcohol, with products sold in nearly 180 countries. Its brands include Johnnie Walker, Crown Royal and Buchanan's whiskies, Smirnoff and Ketel One vodkas, Don Julio tequila, Captain Morgan rum, Baileys, Tanqueray gin and Guinness beer. It makes money by selling these drinks to distributors, retailers, bars and restaurants, and premium brands earn the highest margins. In the fiscal year to June 30, 2026, net sales were $19.6 billion and operating profit before exceptional items was $5.7 billion. Sir Dave Lewis became CEO in January 2026 and set a new strategy and a new operating framework in August 2026. The company is listed in London and its ADRs trade in New York.
- Thesis
- The market prices Diageo with a discount because its US spirits business is shrinking and its plan to fix it is new. In fiscal 2026, organic net sales fell 2.0%, from weak US spirits and from a fall in Chinese white spirits after a change in Chinese government policy. For fiscal 2027, Diageo expects broadly flat organic net sales, with North America down mid-single-digit in a US market that it expects to shrink by about 3%. US tariffs also lower margins. The company cut its full-year dividend to 50 cents per share from 103.48 cents to reduce its debt, and net debt was still 3.1 times adjusted EBITDA at June 30, 2026. For the gap to close, four things must be true. Diageo must meet its fiscal 2027 guidance: low-to-mid-single-digit organic operating profit growth and about $2 billion of free cash flow. Its US market share must stop falling. The new operating framework must deliver about 40% of its $850 million of savings in fiscal 2027. The sale of East African Breweries must close in the second half of 2026, and leverage must fall to the middle of the 2.5 to 3.0 times range by June 2027. The Q1 trading update of November 5, 2026 was in line with this plan. The next evidence comes with the interim results expected in early February 2027 and the full-year results in August 2027. Because the turnaround runs through fiscal 2029, the gap can close only slowly, over two to three years.
- Risks
- US spirits demand is weak and Diageo loses share there. North America organic net sales fell high-single-digit in the quarter to March 31, 2026, and Diageo expects them to fall mid-single-digit in fiscal 2027. Debt is high for a company with flat sales. Net debt was $20.5 billion at June 30, 2026, or 3.1 times adjusted EBITDA, above the 2.5 to 3.0 times target range. The plan to cut leverage depends on the sales of East African Breweries and the Royal Challengers Bengaluru cricket team. US tariffs on imports and the retaliatory tariffs of other countries lower margins. Tariffs partly offset Diageo's organic operating profit growth in fiscal 2026. Chinese government policy hurt Chinese white spirits in fiscal 2026. Without this business, organic net sales would have been about 1.5 points higher. The restructuring is large and new. It costs about $1.2 billion, and the CFO will change in 2027. If savings come late, Diageo can miss its fiscal 2027 guidance.
- Balance sheet
- Cash: $1.5B Debt: $21.5B Net debt: $20.0B EBITDA, last 12 months: $6.7B Net debt / EBITDA: 3.0× (medium) Interest cover: 7.0× Undrawn credit line: $4.6B Debt due within 12 months: $2.4B At June 30, 2026, debt is borrowings without lease liabilities and hedges. The group's net debt was $20.5 billion, because it also includes $685 million of lease liabilities and the fair value of hedges. Adjusted EBITDA is for fiscal 2026, and interest cover uses operating profit before exceptional items and net finance charges of $816 million. Net debt to adjusted EBITDA, after post-employment benefit liabilities, was 3.1 times, down from 3.4 times a year earlier, against a target range of 2.5 to 3.0 times that Diageo says fits an A-band credit rating. Undrawn committed bank facilities were $4.56 billion, of which $1.06 billion expires within one year. Diageo expects the sale of its East African Breweries stake to close in the second half of calendar 2026 and to cut leverage by about 0.25 times. The 2026 annual report does not state the current ratings. As of Jun 30, 2026.
- Checkpoints
- Nov 5, 2026: Q1 fiscal 2027 trading update: North America. Passed. Watch: A pass is organic net sales near flat with a smaller North America decline and guidance kept; a fail is a guidance cut or a larger North America decline. Outcome: Organic net sales grew 1.4%, North America fell 3.6%, less than the high-single-digit fall of early 2026, and Diageo kept its fiscal 2027 guidance. Dec 2026 (estimate): Sale of East African Breweries completes. Pending. Watch: A pass is completion in the second half of calendar 2026 with lower net debt; a fail is a delay into 2027 or a lower price. Feb 5, 2027 (estimate): Fiscal 2027 interim results: savings and leverage. Pending. Watch: A pass is organic operating profit growth with savings on plan and leverage toward 3.0 times or less; a fail is falling profit or leverage above 3.1 times.
- Recent events
- Nov 5, 2026: Diageo said that organic net sales grew 1.4% in Q1 fiscal 2027, the quarter to September 30, 2026, or 0.6% without East African Breweries. North America organic net sales fell 3.6%, with double-digit falls in Don Julio, Casamigos and Crown Royal. Latin America and Caribbean, Asia Pacific, India and Europe, Middle East and Africa grew. Diageo kept its fiscal 2027 guidance, including about $2 billion of free cash flow and leverage near the middle of its 2.5 to 3.0 times range at June 30, 2027, if the sales of East African Breweries and Royal Challengers Bengaluru complete. Oct 13, 2026: Diageo published restated regional results for fiscal 2025 and 2026. The restatement matches its new market and regional operating framework, which applies from fiscal 2027. Sep 23, 2026: Diageo said that Joanne Wilson, now the CFO of WPP, will replace Nik Jhangiani as Chief Financial Officer some time in 2027. Jhangiani stays in the role until the handover. Aug 6, 2026: Diageo reported fiscal 2026 results. Reported net sales fell 3.0% to $19.6 billion, and organic net sales fell 2.0%. Organic operating profit grew 2.0%. Exceptional restructuring costs of $0.9 billion and impairments of $1.5 billion, mostly for Türkiye and the Don Papa brand, cut reported operating profit by 27.2%. Free cash flow rose by $463 million to $3.2 billion, and the full-year dividend was 50 cents per share under the new dividend policy. Aug 6, 2026: At its Capital Markets Day, Diageo set a new strategy and expected about $1 billion of savings over three years, $850 million of it from the new operating framework. For fiscal 2027, it guided broadly flat organic net sales, low-to-mid-single-digit organic operating profit growth and about $2 billion of free cash flow. For fiscal 2027 to 2029, it guided low-single-digit organic net sales growth and mid-single-digit organic operating profit growth a year. May 6, 2026: Diageo said that organic net sales grew 0.3% in the quarter to March 31, 2026. Europe, Latin America and Africa grew strongly, but North America declined high-single-digit because of continued US spirits weakness. Diageo kept its fiscal 2026 guidance.