Diageo shares jumped Thursday after the company unveiled a $1 billion three-year savings plan to turn around the struggling business.
The world’s biggest spirits company, whose brands include Johnnie Walker scotch whisky, Smirnoff vodka, Tanqueray gin, Captain Morgan rum, Don Julio tequila and Guinness stout, said restructuring costs relating to the savings program will amount to $1.2 billion.
The savings will be delivered over 2027 and 2028, with additional supply chain benefits continuing in later years.
“This new strategy, executing with a new, more agile, competitive and cost-effective operating model, gives us confidence that we can return Diageo to a business consistently creating value for shareholders,” said CEO Dave Lewis in a statement.
Shares were last trading nearly 7.3% higher.
Diageo’s net sales for the year ending June 30 declined 2% on an organic basis to $19.6 billion from the previous year. Meanwhile, adjusted operating profit was up 2% to $5.7 billion, largely due to cost savings, which were partly offset by tariffs.
The FIFA World Cup also helped drive up sales of ready-to-drink beverages and cocktails by 35.1%, largely driven by the launch of Diageo’s Casamigos ready-to-serve cocktails during the World Cup and strong sales of Bulleit and Ketel One cocktails.
Citi analysts said they expected the results to “drive the stock up,” because although Diageo’s sales outlook was weaker than expected, its larger-than-expected cost-saving plan more than offsets the weaker revenue. That resulted in higher-than-expected operating profits and small upgrades to Diageo’s 2027 earnings per share forecast.
Turnaround
Lewis recently took the top position at the company, succeeding Debra Crew, who stepped down in July last year.
Lewis noted on Thursday that there was “hard work ahead,” particularly in North America where organic sales declined 8.4% in the year ending June 30.
The company’s three key strategic priorities include focusing on keeping its core brands competitive and in line with consumer trends; keeping customers central to its decisions, and having a more agile and efficient operating framework.
On Jan. 4, 2022, shares of Diageo hit an all-time high, making it the FTSE 100′s third most valuable company, with a stock market value of nearly £90 billion (roughly $121 billion). But since then, the share price has more than halved as its fortunes have waned. The stock is down nearly 13% over the past 12 months.
Diageo shares over the past 12 months.
— CNBC’s Ian King contributed to this report.
