Diageo Reports 1.7% Organic Sales Growth Despite 27.8% Profit Decline

Diageo, the global spirits giant, has reported better-than-expected financial results for the fiscal year 2025. The company's revenue for the year decreased by 0.1% year-over-year to $20.245 billion, surpassing analysts' average estimate of $20.2 billion. Organic sales, which exclude the impact of acquisitions and divestments, grew by 1.7% year-over-year, exceeding the consensus estimate of 1.4%. This growth was driven by price increases and higher sales volumes.

The company's operating profit for the fiscal year 2025 decreased by 27.8% year-over-year to $4.335 billion, with the operating profit margin declining by 819 basis points to 21.4%. Net profit also decreased by 39.1% year-over-year to $2.538 billion.

Looking ahead to the fiscal year 2026, Diageo expects organic sales growth to be around 1.7%, similar to the growth rate achieved in the fiscal year 2025. The company also anticipates mid-single-digit organic growth in operating profit for the fiscal year 2026.

Diageo, like many of its peers, is facing economic uncertainty and concerns over inflation triggered by tariffs imposed by the U.S. president. The company estimates that the annual tariff cost will be around $2 billion, higher than the previous estimate of $1.5 billion. Approximately half of this cost is expected to be mitigated through various measures.

In response to these challenges, Diageo has increased its cost-saving target for the next three years from $5 billion to $6.25 billion. The company's interim CEO, Nik Jhangiani, who took over after the departure of the previous CEO, Debra Crew, last month, stated that the board of directors may announce a decision on the new CEO by the end of October.

Jhangiani noted that despite the challenging consumer environment, including Generation Z, consumers are still spending and going out, but they are increasingly opting for non-alcoholic beverages and ready-to-drink cocktails. He emphasized that Diageo will seek to balance price increases with tariff mitigation efforts and added that price increases are not inevitable for brands affected by new tariffs.

The company's strategic focus on cost management and market share growth in key regions is expected to resonate positively with investors. Despite the uncertain economic outlook, Diageo's proactive measures to control costs and maintain market share are likely to be well-received by the market.