- Q3 organic sales up 5.9%
- Full-year guidance reiterated
- $500 million cost-cutting programme
Despite a tough market backdrop, alcoholic drinks behemoth Diageo (DGE) delivered a tasty 5.9% jump in third-quarter organic sales, albeit one partially inflated by pre-tariff order phasing.
There was also relief as the Johnnie Walker-to-Smirnoff purveyor reiterated its full-year 2025 organic sales and operating profit guidance, sending the shares 0.6% higher to £21.65 in early dealings.
The spirits leader still expects to deliver a sequential improvement in organic net sales growth in the second half.
And while it will take a $150 million hit from tariffs, the FTSE 100 company believes it can mitigate around half of the operating profit impact on an ongoing basis.
Investors also welcomed the launch of the first phase of Diageo’s new ‘Accelerate’ programme to boost free cash flow and lift margins, supported by a $500 million cost-cutting drive.
PURCHASES PULLED FORWARD
Admittedly, results for the third quarter ended 31 March 2025 were flattered by one-offs, notably a pull-forward of imports in anticipation of tariffs in North America, but the figures relieved some of the pressure on CEO Debra Crew.
Reported net sales for the quarter increased by 2.9% year-on-year to $4.4 billion, with organic net sales bubbling up 5.9%, reflecting price increases as well as a 2.8% rise in organic volumes.
From a geographical perspective, North America, Latin America and Africa outperformed expectations, with organic sales up 6.2%, 28.5% and 10.1% respectively, with Latin America rebounding nicely after last year’s inventory destocking.
Europe and Asia Pacific showed relative weakness however, tempering the overall picture for the FTSE 100 drinks titan.
The Guinness stout-to-Don Julia tequila maker reiterated its full-year 2025 guidance for mid-single-digit organic net sales growth, supported by an anticipated improvement in performance during the second half of the year.
Diageo continues to forecast a slight decline in second half organic operating profit, which incorporates the expected impact of US tariffs.
WHAT DID THE CEO SAY?
‘In the third quarter we delivered strong organic net sales growth and are on track to deliver on our guidance of sequential improvement in organic net sales performance in the second half of fiscal 25,’ said Crew.
‘We also reiterated our organic operating profit outlook for fiscal 25, including the impact of tariffs based on what we know at this time. We continue to believe in the attractive long-term fundamentals of our industry and in our ability to outperform the market.’
TALKING THE MARKET’S LANGUAGE
AJ Bell investment director Russ Mould observed that Diageo seems ‘remarkably calm’ about tariffs, despite guidance for a $150 million impact on the business annually.
‘It’s no surprise to see the announcement of a new cost-saving programme, and it’s talking the market’s language by chatting about cash flow targets,’ said Mould.
‘Diageo has a big job to win back the market’s favour after a difficult few years and it could be a long road to recovery.’
Mould added: ‘It’s interesting to see Diageo flag potential disposals over the coming years. We might finally see a sale of Guinness and other beer brands so that Diageo is purely focused on spirits. That would make a lot of strategic sense as it could greatly improve group profit margins, meaning the business might trade on a higher multiple of earnings.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
