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Diageo ‘not satisfied’ with Q1 sales
Johnnie Walker owner Diageo has revised its guidance for fiscal 2026 following a net sales loss of 2.2% to US$4.9 billion, and flat organic sales for its first quarter (Q1).
The drinks giant attributed the sales loss to the negative impact of disposals and with negligible impact from foreign exchange.
However, the firm witnessed a volume growth of 2.9%, with solid performance seen in Europe (up by 3.5%), Latin America (10.9%), and Africa (8.9%). North America, meanwhile, fell by 2.7%.
Nik Jhangiani, interim CEO, said: “Net sales were flat organically in Q1, with growth in Europe, LAC [Latin American and Caribbean] and Africa offset by weakness in Chinese white spirits and a softer US consumer environment than planned for.
“We are not satisfied with our current performance and are focused on what we can manage and control, acting with speed to drive efficiencies, prioritising investment and adapting more quickly to an evolving consumer environment.
“We are well advanced in sharpening our strategy, and we are developing and already implementing clear plans to drive growth across the broader portfolio, ensuring that we meet relevant consumer occasions of the future. Early results from our initiatives to strengthen our commercial execution capabilities, notably in Europe, are encouraging, and we are embedding a more rigorous performance-driven culture across the business.
“For fiscal 2026 we have updated our guidance and remain committed to delivering circa US$3 billion free cash flow in fiscal 26, growing this in future years. Our confidence in delivery of this cash guidance is underpinned by increased rigour and agility to manage maturing stock, A&P spend, capex [capital expenditure], and cost discipline.”
Jhangiani, who stepped into the CEO role at Diageo after the sudden departure of Debra Crew in July, previously said he expected a decision to be made on the appointment of a permanent CEO by the end of October. However, today’s statement has offered no indication that a decision has been reached.
Q1 category and regional performances
From a category perspective, the firm has seen good growth in Scotch, notably Johnnie Walker, and in beer with Guinness.
There was also strong momentum in ready-to-drink (RTD) and ready-to-serve (RTS), particularly Smirnoff Ice and branded cocktails, such as the Ketel One Cocktail Collections and the newly launched Casamigos RTD.
This offset weakness in Chinese white spirits and Tequila in North America, which saw organic net sales drop by 4.1%.
Scotch growth was strong in North America, with double-digit growth for Johnnie Walker, but Tequila declined by double digits, driven by comparatives, competitive pressure and category softness.
In Europe, organic net sales grew by 3.5% driven by sustained strong momentum by Guinness and good overall performance, despite the continued ‘challenging’ backdrop.
While the spirits category remained soft in key markets, this was notably offset by strong performance in Türkiye, which posted solid growth for Scotch driven by Johnnie Walker.
Greater China brought sales in Asia Pacific down by 7.5%, as the region saw strong double-digit declines in both volume and net sales, driven by Chinese white spirits with reduced consumption occasions across the baijiu category, and adversely impacting net sales in the region by approximately 13% and group net sales by around 2.5%.
However, this was partially offset by double-digit growth in India and growth across other markets across the region.
Meanwhile, growth in Brazil saw organic net sales grow by 10.9% in Latin America and Caribbean.
In Brazil, Scotch growth was strong, driven by Johnnie Walker, while the country also saw very strong growth in RTDs, led by Smirnoff Ice.
In Africa, organic net sales grew by 8.9% due to high single-digit growth in East Africa and strong growth in South, West and Central Africa, and in East Africa, Tanzania and Uganda saw strong double-digit growth.
2026 full-year outlook
Going forwards, Diageo expects its organic net sales growth to be flat to slightly down including the adverse impact from Chinese white spirits and a weaker US consumer environment than originally planned for.
Despite this, it expects positive operating leverage, supported by cost savings from its Accelerate programme.
Organic operating profit growth is expected to be low- to mid-single digits, including the impacts of Chinese white spirits and a weaker US consumer environment in the organic net sales guidance. This also includes the impact of tariffs as at this time.
The company’s guidance for the expected impact of tariffs into the US from UK and European imports remains unchanged at approximately US$200m pre mitigation on an annualised basis. This assumes that the current tariffs remain at 10% on imports from the UK and 15% on imports from Europe, and that Mexican and Canadian spirits imports remain exempt under USMCA, with no other changes to tariffs.
Given the actions to date and before any pricing, Diageo expects to be able to mitigate around half of this impact on operating profit on an ongoing basis.
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