Diageo CEO Dave Lewis unveils $1 billion cost-cutting plan, shares surge up to 11%

Turnaround plan unveiled

Diageo CEO Dave Lewis on Thursday announced a $1 billion cost-saving programme to be delivered over three years, accompanied by $1.2 billion in restructuring costs, of which 70% has already been incurred. The plan targets global and back-office functions where Lewis said there was "massive duplication" in processes across countries, regions and global operations. Lewis, who took over as CEO in January and earned the nickname "Drastic Dave" for his cost-cutting record at Tesco and Unilever, told journalists the programme would have "very significant impacts" on colleagues. He declined to disclose the number of jobs affected, saying consultations were ongoing in some regions.

Irish operations hit

Up to 150 roles at Diageo's Irish operation are at risk under the plan. The company notified Ireland's Department of Enterprise on June 22 of "proposed collective redundancies." Diageo employs about 1,200 people in Ireland across brewing, liqueur production, marketing, sales and commercial operations, with brands including Guinness, Baileys and Smithwick's under its portfolio. The cuts are expected to result in thousands of job losses from Diageo's global workforce of 30,000.

Financial deterioration

Diageo reported a 3% drop in net sales to $19.64 billion for the fiscal year ended June 30, while reported operating profit fell 27% to $3.16 billion, driven by exceptional restructuring costs and impairment charges. Net profit was $1.74 billion, down 26%. Severance costs surged to $514 million from $73 million a year earlier. Net debt at year-end stood at $20.48 billion, 6.3% below the prior year, though debt exceeded three times EBITDA. The company forecast flat annual sales for fiscal 2027 and low-single-digit organic net sales growth between fiscal 2027 and 2029, replacing its previous medium-term target of 5% to 7% growth scrapped in 2025.

North American weakness

North America remains Diageo's largest market and its biggest challenge. Sales in the region fell 8.4% in the year to June, remaining above $7 billion but with scope to shrink further toward the pre-pandemic level of $5.7 billion. Diageo's U.S. spirits sales fell 7% over the last six months, compared with a 1.7% decline for the sector overall. Tequila brands Casamigos and Don Julio have been under particular pressure. Lewis acknowledged the difficulty ahead.

There is hard work ahead, particularly in North America, where improving performance is a clear priority, but we are confident we can deliver without taking a step back in operating profit.

Market reaction and valuation

Investors welcomed the plan, sending Diageo shares up as much as 11% on the London Stock Exchange before gains pared to 6.5% by 1330 GMT, on track for the stock's best day since November 2020. The shares have fallen to less than half their peak reached in January 2022. Even after Thursday's rally, Diageo trades around 14 times expected 2027 earnings, according to Visible Alpha, below Anheuser-Busch InBev at 17 times and Remy Cointreau at 25 times. Lewis said the $1 billion in savings would fund investment in innovation and improve competitiveness rather than simply boost profits, potentially including price cuts for some brands and investment in new products such as ready-to-drink cocktails.