Investors raised a glass to Diageo’s (DGE) keenly anticipated full-year figures and details of its new strategy, as the booze group’s share price made up some lost ground on results day.

Although statutory figures were less than impressive, organic operating profit increased by 2 per cent, on a 116 basis point rise in the related margin. It was achieved despite an unfavourable product mix in the US, and largely due to mounting cost savings, the latter the most pertinent issue given this year’s change at the helm. 

The market valuation has been on a down-leg ever since January 2022 due to a succession of setbacks. Some were beyond management’s control, such as changing drinking habits among Gen Z and millennials, but other issues, such as the excess inventory in Latin America and the Caribbean, were avoidable.

If you were to identify Diageo’s primary bull point from an historical perspective, it would have to be brand strength. Products such as Johnnie Walker and Smirnoff, and many more besides, have long been market leaders. But that primacy may well have bred a degree of complacency. 

Whatever the reasons behind the group’s underperformance, a tonic was obviously needed. So, the ex-boss of Tesco (TSCO), Sir Dave Lewis, was brought in as chief executive at the beginning of this year to shake (or stir) things up.

The chief executive’s new strategy has seen the group take on the best part of a $1bn (£746mn) restructuring charge linked to the implementation of a new operating framework, which, among other outcomes, is designed to deliver around $850mn in cost savings (over two years), starting in fiscal 2027.

With capital discipline much to the fore, fat is being systematically cut from the bone, as evidenced by deals to offload East Africa Breweries and the Royal Challengers Bengaluru cricket team. A steep reduction in the annual dividend is in line with the new dividend policy announced in February. 

A great deal of attention will be paid to how Sir Dave contends with Chinese government anti-grift policies, which have weighed on the group’s CWS (Chinese white spirits – baijiu) interests. You can tell they’ve been a major drag on both Asia-Pacific and group performance by the prevalence of “ex-CWS” comparators within the results. 

FactSet consensus gives IFRS earnings per share of 114.7¢ for this year, rising to 126¢ in 2028. 

The positive market reaction was almost certainly a case of “not as bad as expected”, given the absence of a rumoured profit reset. But even with further rationalisation measures in train, including reduced marketing costs and job cuts, the turnaround won’t be achieved overnight. Hold.

Last IC view: Hold, 1,754p, 25 Feb 2026

DIAGEO (DGE)    ORD PRICE:1,743pMARKET VALUE:£ 38.87bnTOUCH:1,743-1,744p12-MONTH HIGH:2,142pLOW: 1,296pDIVIDEND YIELD:2.1%PE RATIO:30NET ASSET VALUE:487¢*NET DEBT:154% †Year to 30 JunTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)202222.44.3914076.18Year to 30 JunTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)202328.35.6419698.5202427.95.46173103.5202528.03.54106103.5202627.82.5678.150.0% change-1-28-26-52Ex-div:15 OctPayment:3 Dec£1 = $1.34. *Includes intangible assets of $13.4bn, or 600¢ a share. †Does not include ‘other financial liabilities’ of $642mn (net).