Diageo slashes dividend as ‘Drastic Dave’ takes charge
Guinness maker Diageo has slashed its dividend as the cost-cutting regime of new chief executive ‘drastic’ Dave Lewis begins to take hold, prompting a share price spook.
The board announced the “difficult” decision to cut its dividend to 20 cents to “accelerate the strengthening” of its balance sheet in its interim results, the first financial update since Sir Dave Lewis took charge.
Diageo’s new boss said consumers are opting to have fewer drinks each time they indulge.
He said: “These fewer serves per occasion point to a pressure in the economics that our consumer groups are facing.”
“What you see is a very significant squeeze on disposable income,” he added.
The firm’s share price fell by as much as 14.7 per cent on Wednesday, dragging the stock down to a 0.5 per cent lower than its level at the start of the year.
The FTSE 100 giant, which also owns spirit brands Smirnoff, Johnnie Walker and Captain Morgans, has suffered from tight margins in recent years as consumers turn to low alcohol alternatives and cheaper brands.
The dividend cut comes as Diageo underperformed analyst expectations, notching a four per cent drop in sales – heftier than the three per cent forecast – in the six months to December 2025.
The group delivered net sales of $10.5bn and an operating profit of $3.1bn, down 1.2 per cent.
The board attributed this falling profit to an adverse market and the costs of tariffs.
The Guinness-maker’s stock has slid over 26 per cent in the last 12 months and took a steep drop in November after operating profit growth for 2026 was revised down to low to mid single digits.
Tarrifs continue to hit performance
Diageo has suffered in recent years from low sales in Latin America and the Caribbean as cash-strapped customers opt to drink less and pick cheaper brands.
In November 2023, the firm was forced to release a trading update setting out its weaker-than-expected performance in the region, which contributed nearly 11 per cent of its net sales value.
But Wednesday’s results noted a pickup in performance in the region, with poor sales in North America and China instead dragging down growth.
The spirit maker saw a 7.4 per cent drop in net sales in North America, which accounts for 36 per cent of its total sales, and a 13 per cent fall in Asia Pacific, which forms 18 per cent of its market.
But sales grew in Europe (up 4.9 per cent) and Latin America and the Caribbean (6.3 per cent).
“We believe this was largely due to further macroeconomic and geopolitical uncertainty, and weak consumer confidence in key markets,” the report said.
Diageo had previously warned it was facing a $200m yearly hit from the impact of Trump’s tariffs on US imports from the UK and Europe and on Wednesday said this is set to continue.
Though the firm’s share value nudged up following the Supreme Court’s ruling that the President’s tariffs were unlawful, the report said it was too early to update its forecasting.
The board said: “We note the recent ruling on tariff policy by the United States Supreme Court and the subsequent statements by the US Administration, and also the potential for tariff increases in the future. We will continue to monitor developments.”
Dividend cut for ‘financial flexibility’
Lewis said there are “significant opportunities” for the struggling spirits-maker to reverse its fortunes as he set out to reassure shareholders.
He said: “To deliver on these opportunities, we need to create more financial flexibility. Accordingly, the Board has taken the difficult decision to reduce the dividend to a more appropriate level which will accelerate the strengthening of our balance sheet.
“We are confident that this is the right action which will ensure that Diageo can reinforce its position as the leading international spirits business and drive stronger shareholder value over the coming years.”
Dan Lane, lead analyst at Robinhood UK, said: “Reducing the dividend never looks good but Dave Lewis was brought in to make the hard decisions and if it steadies the ship it may be worth the short-term pain.
“Until volumes and prices start to motor again, this looks more like Diageo trying to regain its footing rather than the start of a new growth leg. Expect to see a few more reviews of business units – cost control is key and underperforming brands may well get the chop.”
Lewis was dubbed ‘Drastic Dave’ after he became known for relentless cost-cutting and rationalisation during his time at Unilever, and went on to lead a comprehensive turnaround at Tesco, where he was chief executive from 2014 to 2020.
Drastic Dave took the helm in January to replace Debra Crew, who abruptly stepped down with immediate effect in July after just two years in charge.
Adam Vettese, market analyst at eToro, said: “New CEO Dave Lewis faces a baptism of fire, prioritising debt reduction over pay-outs, eroding Diageo’s dividend allure.
“Some investors may be tempted seeing that the shares look cheap versus history, especially if US rebounds, but repeated downgrades signal execution risks in a tough macro environment.”