Diageo cuts costs and jobs as demand slump persists
Weak spirits demand drags sales Diageo's organic sales fell 2.8% in the first half as US and Chinese drinkers cut back, and the company now expects a 2-3% decline for the full year. Falling sales mean lower profits, which pushes the share price down.
Demand weakness is the root cause of the slump driving all the cost-cutting news.
$1bn cost-cutting plan lifts shares New CEO Dave Lewis announced $1bn of savings over three years, mostly from simplifying how the company is run, to fund a turnaround without cutting operating profit. Shares rose 7% on the news, as investors saw a path to recovery.
This is the main new event that moved the stock and frames the turnaround story.
Nearly 2,000 jobs cut in restructuring Diageo is cutting almost 2,000 jobs, over 6% of its workforce, and halved its dividend to 50 cents. While this frees up cash, it signals deep trouble and shrinking revenue and profit, which weighs on the share price.
The scale of job cuts and dividend cut shows how serious the downturn is, a key negative force.
Innovation offsets weak demand Diageo is pushing new products like Crown Royal Blackberry and non-alcoholic Guinness 0.0, with ready-to-drink sales up 17% and Guinness up 10.9%. These bright spots show some resilience, but they are not yet big enough to reverse the overall sales decline.
It provides a counterweight to the gloom, showing where future growth might come from.