Diageo Profit Plunged 26% in Year as Net Sales Eased 3% (Organic Sales -2%)

Diageo plc reports for the year ended June 30 net profit of $1.96 billion, or 78.1 cents a share, on net sales of $19.64 billion. Volume eased 0.4% resulting in a negative price/mix of 1.6%.

The company attributed the negative price mix to U.S. Spirits performance and weaker sales in CWS, saying it saw growth in Europe, Latin America/Caribbean and Africa, offset by weakness in the U.S. and Asia Pacific.

Special one-time charges of $900 million related to restructuring were largely responsible, the company said, for a 27.2% decline in operating profit. Excluding those exceptional items, Diageo said, organic operating profit rose 2%.

CEO Dave Lewis said the revised opeerating framework announced previously "is being rolled out across Diageo." In 2026, the change costabout $800 million, about 70% of the cost of the two-year program. Savings will be realized over two years, starting in Fiscal 2027, and "will allow us to invest in the turnaround without needing to reduce operating profit."

North American Results

In North America, reported volume fell 6.9% and net sales fell 9.1%. Diageo slashed its North American marketing spending 15.4%. Operating profit net of exceptional items fell 8.6%. With those exceptional items included, operating profit fell 14.8%.

Organic volume fell 6.7%, net sales was down 8.4%. Marketing spending was slashed 13.6% and operating profit before exceptional items was down 10%.

The company attributed the 8.4% decline in organic net sales primarily to weakness in the U.S., with the 11.5% decline in U.S. Spirits only partly offset by growth in Diageo Beer Co. US. The weakness in the U.S. affected Canada, where organic volume fell 6.7%, only partly offset by Diageo Beer Co. US growth.

Much of the problems in Diageo's U.S. Spirits operations can be explained in three words: Tequila and Crown Royal. Diageo's tequila net sales plunged 21.1%, driven by both Don Julio and Casamigos.

Don Julio's net sales fell 19.2%, nearly double the 10.1% decline in depletions, which Diageo explained was a result of "lapping inventory
replenishment and double-digit growth last year." Casamigos net sales plunged a stunning 27.7%, with depletions down 23% leading to a decision to lower Casamigos pricing to make it more affordable.

Our Analysis: The net effect of this will be a two-brand tequila hierarchy at Diageo. Don Julio will remain Diageo's premier, higher-priced, super-premium label. Officials note it has maintained steadier equity.

Casamigos is being slotted beneath Don Julio on the pricing ladder to appeal to a broader, slightly more value-conscious demographic. This will naturally make Casamigos more of an "affordable luxury" tequila, while Don Julio occupies the "luxury" slot.

In a move that would have been unthinkable five or 10 years ago, when Diageo was whipping the premiumization horse, Diageo is investing heavily in Astral Tequila, which occupies a much cheaper price point than either Don Julio or Casamigos.

Crown Royal net sales fell 15.9%. Diageo attributed this to "softness in Crown Royal Deluxe and lapping strong comparatives for Crown Royal Blackberry through fiscal 25.

Rounding out the grim news at Diageo, Scotch net sales declined 1.1%, with growth in both Johnnie Walker, up 1.0%, and single malts offset by Buchanan's, down 7.3%

Two areas – RTDs and Cocktails – saw growth. RTDs/Cocktails net sales grew 35.1%, mainly driven by the successful launch of Casamigos RTS for the FIFA World Cup and growth in Casamigos RTD, as well as strong performance from Bulleit and Ketel One Cocktails.

Diageo Beer Co. USA net sales grew 4.4%, driven by growth in Guinness, led by Guinness Draught and Smirnoff RTD which grew mid-single-digits. reflecting continued investment and innovation, including Smirnoff Sunny Days and Smirnoff Shorties.

Canadian net sales grew 7.7%, supported by growth in Guinness and Ketel One vodka and a one-off item relating to a favourable resolution of commercial terms with a customer.