Diageo PLC shares surged on Thursday after the company announced a three-year, $1 billion cost-saving initiative aimed at reversing its business downturn. The world's largest spirits maker, whose brand portfolio includes Johnnie Walker Scotch whisky, Smirnoff vodka, Tanqueray gin, Captain Morgan rum, Don Julio tequila, and Guinness stout, stated that restructuring costs related to the savings plan would reach $1.2 billion.
The cost-saving measures will be implemented in 2027 and 2028, with additional supply chain benefits expected in subsequent years. "This new strategy, combined with a more agile, competitive, and cost-effective operating model, gives us confidence to put Diageo back on track for sustainable value creation for shareholders," CEO Dave Lewis said in a statement. The stock was last trading up nearly 7.3%.
Diageo's organic net sales for the fiscal year ending June 30 fell 2% year-over-year to $19.6 billion. Meanwhile, adjusted operating profit rose 2% to $5.7 billion, primarily driven by cost savings but partially offset by tariff impacts. The FIFA World Cup also boosted ready-to-drink beverage and cocktail sales by 35.1%, largely due to Diageo's Casamigos RTD cocktails launched during the tournament, along with strong sales of Bulleit and Ketel One cocktails.
Navigating the turnaround
Lewis recently took the helm, succeeding Debra Crew who stepped down in July. He noted on Thursday that there is "a long way to go," particularly in the North American market, where organic sales declined 8.4% in the fiscal year ending June 30. The company's three strategic priorities include: keeping core brands competitive and aligned with consumer trends; making customer-centric decisions; and building a more agile and efficient operational framework.
On January 4, 2022, Diageo shares hit an all-time high, making it the third-largest company by market capitalization in the FTSE 100 index, with a value approaching GBP 90 billion (approximately $121 billion). However, the stock has since more than halved as the company's performance deteriorated. The shares have fallen nearly 13% over the past 12 months.
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