Diageo shares jump on new cost-saving goal but investors see glass ‘half full’

Johnnie Walker and Talisker owner Diageo is to extend cost-saving plans after revealing a slump in profits following a “challenging year”.

The world’s largest spirits maker, which has almost 30 malt distilleries in Scotland and owns global brands such as Guinness stout, Smirnoff vodka and Captain Morgan rum, saw net sales edge marginally lower amid weaker consumer demand for some spirits as younger people continue to moderate drinking habits.

Releasing its latest full-year results, the group said it was seeking to secure $625 million (£471m) in cost savings, increasing from a previous target of $500m.

FTSE 100 spirits giant Diageo has a vast portfolio that includes Johnnie Walker whisky (above), Guinness stout and Smirnoff vodka.

Interim boss Nik Jhangiani said the savings plan was “not about job cuts” but added that “there will be some” as a result. He stressed that the group could still increase its overall workforce. Diageo expects to secure these savings over the next three years from advertising and promotion efficiencies, reduced overheads and supply chain improvements.

The increased savings plans come amid a period of upheaval at the group after the departure of its previous boss last month. Debra Crew stepped down as chief executive with immediate effect and following a recent decline in Diageo’s share value.

Tariffs, cautious consumer demand and increased cost pressures have weighed down businesses across the drinks industry.

Diageo reported that net sales dipped 0.1 per cent to $20.2 billion (£15.2bn) for the year, although organic sales grew by 1.7 per cent. That fall in net sales was driven by unfavourable currency rates and changes to its brand portfolio.

In Europe, Diageo reported that net sales were up 0.4 per cent, with a 6.7 per cent rise in Britain, despite a decline in the volume of sales.

The firm revealed that operating profits fell 27.8 per cent to $4.33bn in the year to June 30.

Richard Hunter, head of markets at investment platform Interactive Investor, said a “glass half-full” approach was emerging at the group.

“Investors have found Diageo’s recent performance difficult to swallow, and these results underline the scale of the challenges ahead,” he noted. “That being said, there are emerging glimmers of hope given the reach and power of the group’s brand portfolio.

“More broadly, the current effects of the tariffs are likely to cause an annualised hit of some $200m (upgraded from a previous $150m) on profits although the group estimates that its mitigating actions, such as increasing prices, cost control and supply chain management will limit the damage,” he added.

Matt Dorset, equity research analyst at Quilter Cheviot, said: “Guinness continues to be incredibly successful and is confirming its role as Diageo’s flagship brand, with 13 per cent sales growth, gaining share across Great Britain, Ireland and the US. Meanwhile, the Don Julio tequila brand is also performing well, with 38 per cent growth and gaining share across 90 per cent of markets.

“Diageo provided no update on the new CEO, but clearly given the challenges it faces the new arrival will have a large ‘to do’ list.”

Shares were up 5 per cent in early trading on Tuesday following news of the revised cost-saving plans.

Diageo: What investors want to hear as Johnnie Walker owner looks to bolster share price