Diageo will report results on Wednesday and provide insight into how the drinks giant is navigating faltering demand in key markets amid changing consumer behaviors.
Diageo shares have more than halved since their peak in 2022 as a series of setbacks in China, the US, and Africa have raised questions about the company’s growth prospects.
Morningstar analysts have highlighted that the pressures that have dogged Diageo in recent years haven’t gone away, but the company has a much tighter grip on its management.
Verushka Shetty, equity research analyst at Morningstar, said: “In its first-quarter results last year, Diageo lowered its full-year guidance, which makes sense given the current environment.”
“The company now expects a slight decline in organic revenue year on year and low- to mid-single-digit operating profit growth. Previously, it had guided to organic net sales growth in line with fiscal 2025 and mid-single-digit organic operating profit growth. We do not expect a meaningful change here.”
“We continue to see the US and China as the main drags on performance. Pernod also reported softness in both markets last week, while performance was mixed in other regions.”
Shetty continued to explain that much of the focus will be on the action Diageo is taking to control costs and maintain margins:
“Diageo has been progressing with cost-cutting initiatives and divesting non-core assets (including the Bangalore cricket team and East Africa Breweries) to support cash generation and protect margins. There is now increasing discussion that the new CEO, Sir Dave Lewis, plans to restructure the organisation – something that would not be surprising given his reputation.”
Despite ongoing constraints, Morningstar still sees value in the stock.
“Diageo is a four star stock, trading at roughly 18% discount to our Fair Value Estimate,” Shetty said.