Spirits giant Diageo said it aims to save some $1 billion over the coming years through a restructuring, including job cuts, as it hopes to return to sales growth and a firmer bottom line.
The group, whose stable of alcoholic drinks includes Guinness stout, Smirnoff vodka and Johnnie Walker whisky, said the $1 billion in savings will begin in the current fiscal year, and will be achieved from work on operations and on its supply chain. Costs related to the program will amount to $1.2 billion, with around $752 million booked in its fiscal year ended in June.
"These savings will allow us to invest in the turnaround without needing to reduce operating profit" on an adjusted basis, Chief Executive Dave Lewis said. Expenses for the last year included severance costs of more than $500 million.
Lewis declined to put a number on jobs Diageo has cut and plans to lose ahead. Positions are being lost in areas where processes are duplicated across markets, he told reporters in a call.
For fiscal 2027 through next June, the group expects organic growth in its operating profit in the low-to-mid-single digits, including part of the planned cost savings. Divestment of the Kenya-based East African Breweries and an Indian cricket team, Royal Challengers Bengaluru, should, meanwhile, boost the group's debt-to-earnings ratio, it said.
Sales are likely to be flat on year, with North America sales continuing to fall after sliding more than 8% in fiscal 2026. Other regions, including Europe, by contrast, saw growth in sales over the year. Over the medium term, Diageo aims to see sales growth pick up pace, and expects its bottom line to get a boost from the savings and a more favorable product and price mix.
The guidance looks better than feared, with no bad news on profit margins and cautious optimism on revenue growth, analysts at JPMorgan wrote in a note.
Shares rose more than 5% following the update, reaching their highest level since February.
Improving performance in North America remains a "clear priority," Lewis said. The group will also work to lean more on its wider portfolio, while continuing its agenda of premiumization, he said. Lewis said the company isn't focusing on adding new labels to its portfolio, but will look to invest to spur growth in big-name brands like Smirnoff and Captain Morgan rum in the U.S.
"Diageo has what we need," he said.
Lewis, a former boss of British grocer Tesco, was brought in to lead from the start of the year with a remit to turn things around for the group. The group also sees big growth opportunities in ready-to-drink formats, such as mixed cocktails in cans.
"Small formats, core spirits, big opportunity," Lewis said.
For the recently ended fiscal year, the London-listed group made net sales of $19.64 billion, down 2% from a year earlier on an organic basis. That drop was in line with analysts' expectations, according to consensus figures provided by the company. Operating profit fell 27% to $3.16 billion, a drop associated with the restructuring costs, with the operating margin sliding some 5.35 percentage points to 16.1%.
"This new strategy, executing with a new, more agile, competitive and cost-effective operating model, gives us confidence that we can return Diageo to a business consistently creating value for shareholders," Lewis said.
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