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DEO | Earnings Review — FY2026

Verdict: rebased-bar delivery with an OP self-help story — not a growth re-rate. Diageo printed organic net sales −2.0% (−$386m organic move) at the best end of the H1-cut −2% to −3% guide, organic operating profit +2.0% (+$112m), and free cash flow $3,211m vs a ~$3B floor (+$211m / +7%). Reported net sales $19,643m (−3.0% YoY) were essentially in line with FMP consensus (~$19,649m). GAAP operating profit $3,156m (−27% YoY) and basic EPS 78.1¢ (−26%) are exceptionals optics (~$1.5B impairments + ~$0.9B restructuring); EPS before exceptionals 165.3¢ (+0.7%) and adj. EBITDA margin +100 bps show the underlying P&L stabilized, not re-accelerated.

Trajectory lens (principle: direction over absolutes). Organic NSR has decelerated from the FY22 peak of +21.4% to −2.0% — a multi-year deceleration into trough, with only a brief FY25 bounce (+1.7%). Within FY26, H1 was the top-line trough (reported NS YoY −4.0%); H2 re-accelerated +232 bps to −1.7% but stayed negative. Pre-ex EPS is the clean operating signal: H1 −2.5% → H2 +5.3% (FY +0.7%). Price/mix flipped from a multi-year positive bridge to −$317m organic — the structural mix problem, not free-falling volume (−1.3% units).

What is new on the CMD (same day, afternoon). FY27: organic NSR broadly flat (NAM still mid-single-digit down, market ~−3% with improving share); organic OP low- to mid-single-digit; FCF ~$2B after ~$850m exceptional cash; leverage mid-point of 2.5–3.0x if EABL (~0.25x) + RCB (~0.1x) close. Medium-term FY27–29: LSD organic NSR (accelerating), MSD organic OP, ~$8B cumulative FCF. Top line troughs while OP is savings-funded (~$1B framework + supply over 3 years; Accelerate closed at $514m / ~85% in FY26). Street FMP FY27 revenue (~$19.2B, −2.3% reported) is slightly more cautious than company organic flat.

Tone and credibility. Morning results call had no live Q&A (guidance deferred to CMD). CMD Q&A was operationally strong on NAM OP path (LSD down 2 years, then flat) and brand teardowns, but deflected on rejected strategy alternatives, buyback timing, and price-reset durability. Nine cross-period contradictions (guide cuts, US/tequila narrative inversion, dividend cut vs “grow sustainably,” CEO customer critique vs prior RTM “paying dividends”) keep management-credibility risk elevated even as the rebased FY26 bar was hit cleanly.

Upcoming catalysts (ranked). (1) NAM share repair under still-MSD decline; (2) ~$1B savings-funded OP resilience; (3) $2B FCF trough digestion; (4) EABL/RCB delever closes; (5) tequila + Guinness brand swing factors.

Diageo reports semi-annually (H1 ended Dec; FY ended Jun). Tables use H1/FY stamps in the USD reporting era (H1 FY24 onward). YoY is always same period vs prior year — never H1 vs H2.

Organic growth trajectory (currency-neutral)

| Metric | FY21 | FY22 | FY23 | FY24 | FY25 | FY26 | |--------|-----:|-----:|-----:|-----:|-----:|---------:| | Organic NSR % | +16.0% | +21.4% | +6.5% | −0.6% | +1.7% | −2.0% | | Δ vs prior FY (pp) | — | +5.4 | −14.9 | −7.1 | +2.3 | −3.7 | | Volume (m units) | 238.4 | 263.0 | 243.4 | 230.5 | 230.1 | 227.1 | | Volume YoY | — | +10.3% | −7.5% | −5.3% | −0.2% | −1.3% |

Read: peaked FY22, stepped down through FY24, brief FY25 bounce, slipped back to −2% in FY26 — not re-accelerating.

Semi-annual consolidated P&L (USD)

| Metric | H1 FY24 | FY24 | H1 FY25 | FY25 | H1 FY26 | FY26 | |--------|--------:|-----:|--------:|-----:|--------:|---------:| | Net sales ($m) | 10,962 | 20,269 | 10,901 | 20,245 | 10,460 | 19,643 | | NS YoY % | — | — | −0.6% | −0.1% | −4.0% | −3.0% | | Gross margin % | 61.3% | 60.2% | 61.8% | 60.1% | 61.0% | 59.5% (−66 bps) | | Operating profit ($m) | 3,317 | 6,001 | 3,155 | 4,335 | 3,116 | 3,156 | | OP YoY % | — | — | −4.9% | −27.8% | −1.2% | −27.2% | | Adj. EBITDA ($m) | — | 7,037 | — | 6,645 | — | 6,650 | | Adj. EBITDA margin | — | 34.7% | — | 32.8% | — | 33.9% (+100 bps) | | Basic EPS (¢) | 98.6 | 173.2 | 87.1 | 105.9 | 89.7 | 78.1 | | EPS before exceptionals (¢) | 108.1 | 179.6 | 97.7 | 164.2 | 95.3 | 165.3 | | EPS-BE YoY % | — | — | −9.6% | −8.6% | −2.5% | +0.7% | | Organic NSR % | — | −0.6% | +1.0% | +1.7% | −2.8% | −2.0% |

Regional organic NSR (FY26)

| Region | FY26 organic | FY26 reported NS ($m) | Reported NS YoY | |--------|-------------:|----------------------:|----------------:| | North America | −8.4% | 7,249 | −9.1% | | Europe | +3.4% | 5,097 | +5.7% | | Asia Pacific | −6.3% | 3,333 | −8.3% | | LAC | +7.7% | 2,160 | +16.9% | | Africa | +13.3% | 1,642 | −10.5% (FX/disposals) |

Why the trend: NA (~37% of NS) is the primary drag (US tequila ~−21%; affordability / down-trading). APAC dragged by Chinese white spirits (~8 ppt on region). Europe, LAC, Africa are the offsets. Organic price/mix −$317m vs volume −$69m — mix is the new problem. Accelerate $514m (~85% of program) funded OP growth despite −$506m organic gross profit.

Organic NSR path (visual)

This print: sales IN LINE vs FMP; organic NSR BEAT rebased guide (best end of −2/−3); organic OP and FCF modest BEATs. Not a high-quality growth beat — delivery of a lowered bar with cost-led profit.

FY26 results vs consensus / guide

| Metric | Consensus / Guide | Actual | Variance | Beat/Miss | |---|---|---|---|---| | Reported net sales | FMP ~$19,649m | $19,643m | −$6m / −0.03% | IN LINE | | Organic NSR growth | Guide −2% to −3% | −2.0% (−$386m) | +50 bps vs −2.5% mid | BEAT vs guide | | OP before exceptionals | Street ~$5.6B; guide flat→+LSD | $5,683m; org +2% | ~+$80m / mid-guide | BEAT (modest) | | Free cash flow | Co. guide c.$3.0B | $3,211m | +$211m / +7% | BEAT | | EPS pre-exceptionals | n/a (ADR FMP unreliable) | 165.3¢ | +0.7% YoY | Ops + | | Reported OP (GAAP) | n/a | $3,156m | Exceptionals ~$2.4B | Not comparable |

Heatmap — last 8 semi-annual prints (organic NSR vs guide)

★ = this print. B = Beat · M = Miss · ~ = In line. Primary score = organic NSR vs company guidance.

Historical beat rates (organic NSR)

| Window | Beats | In-line | Misses | Beat rate (B only) | Guide-hit (B+~) | |---|---:|---:|---:|---:|---:| | L12 semi (H1'21–FY26) | 8 | 1 | 3 | 67% | 75% | | L4 semi (H1'25–FY26) | 2 | 1 | 1 | 50% | 75% | | L8 semi (H1'23–FY26) | 4 | 1 | 3 | 50% | 63% |

Pattern: Mixed. Not a consistent beater post-FY23. Magnitude improving from H1 FY26 trough (org OP $: −$93m H1 → +$112m FY). Guide credibility weakened then rebased — two FY26 cuts; FY26 hit the rebased bar.

Mgmt variance attribution: NAM/tequila + CWS explain sales shortfall vs history; Accelerate explains OP hold/beat; CapEx discipline + WC explains FCF beat. Core demand still soft in NAM spirits / CWS.

FY26 scorecard — prior guide vs actual

| Metric | Initial (Aug 2025) | Revised (H1 Feb / Q3 May) | FY26 actual | vs revised | |--------|--------------------|---------------------------|-------------|------------| | Organic NSR | Similar to FY25 (~+1.5–1.7%) | −2% to −3% | −2.0% | Top of range | | Organic OP | Mid-single-digit | Flat to +LSD | +2.0% | Upper half | | Free cash flow | c.$3bn | c.$3bn | $3,211m | Beat ~$0.2B | | Accelerate | Programme build | ~50% in FY26 at H1 | $514m / ~85% | Ahead of H1 pace | | Dividend | Prior higher payout | 30–50% policy | 50¢ / 30% | Floor of new policy |

Waterfall — organic NSR guidance path

Organic OP / FCF waterfalls

| Step | Organic OP growth | FCF ($bn) | |------|------------------:|----------:| | FY26 initial | Mid-SD (~4–6%) | ~3.0 | | FY26 revised | Flat to LSD (0–3%) | ~3.0 | | FY26 actual | +2.0% | 3.21 | | FY27 new (CMD) | LSD–MSD (~2–5%) | ~2.0 (after ~0.85 cash x) | | Street FY27 EBIT (FMP) | ~−1.8% reported | n/a | | MT FY27–29 | MSD CAGR | Cum. ~8.0 after ~0.85 x |

FY27 company guide detail

| Item | Guidance | Key assumptions | |------|----------|-----------------| | Organic net sales | Broadly flat | NAM organic MSD down; market ~−3%; improving share vs FY26 | | Organic OP | LSD to MSD up | ~40% of ~$850m op-framework savings + ~25% of ~$150m supply | | Free cash flow | c.$2 billion | After ~$800m framework + ~$50m supply cash costs | | Leverage | Mid-point 2.5–3.0x by end FY27 | EABL ~0.25x + RCB ~0.1x complete as planned | | MT NSR CAGR (FY27–29) | LSD, accelerating | As NAM stabilises and gains share | | MT OP CAGR | Mid-single-digit | Savings + mix improvement | | Cum. FCF FY27–29 | c.$8bn after c.$850m exceptional cash | Reinvestment funded by framework savings |

Trajectory summary: organic sales multi-year deceleration into trough (FY22 peak → FY26 −2%); FY27 guide arrests the decline but does not restore growth until MT “accelerating LSD.” OP turns from organic declines (FY24 −5%, FY25 −1%) to +2% FY26 and guided LSD–MSD — savings-funded, not demand-led. FCF trough is intentional (restructuring cash), not organic cash collapse.

Eight consecutive half-years (H1/H2) as the natural reporting axis. YoY = same half vs prior-year same half. Acceleration = change in YoY rate vs prior half (bps).

Revenue & EPS YoY with acceleration

| Metric | H1 FY23 | H2 FY23 | H1 FY24 | H2 FY24 | H1 FY25 | H2 FY25 | H1 FY26 | H2 FY26 | |--------|--------:|--------:|--------:|--------:|--------:|--------:|--------:|----------:| | Revenue YoY % | +18.4% | +2.6% | −1.4% | −1.4% | −0.6% | +0.4% | −4.0% | −1.7% | | Rev Accel (bps) | — | −1,574 | −406 | +6 | +80 | +95 | −444 | +232 | | GAAP EPS YoY % | +19.7% | +14.5% | −17.2% | −3.4% | −11.7% | −74.8% | +3.0% | −161.7% | | Pre-ex EPS YoY % | — | — | — | — | −9.6% | −7.0% | −2.5% | +5.3% |

Inflection points

| # | Period | What turned | Signal | |---|--------|-------------|--------| | I1 | H2 FY23 → H1 FY24 | Rev YoY from boom to −1.4% | End of post-COVID super-cycle; LAC destock | | I2 | H1–H2 FY25 | Rev briefly nicks +0.4%; organic FY25 +1.7% | Temporary stabilisation | | I3 | H1 FY26 | Rev YoY −4.0%; organic ~−2.7% | Primary top-line trough — NAM −8.4%, tequila ~−21% | | I4 | H2 FY26 | Rev YoY +232 bps to −1.7% | Less-bad inflection — Europe/LAC/Africa offsets; not growth yet | | I5 | H2 FY25 & H2 FY26 | GAAP EPS cliffs (−75% / −162%) | Exceptionals quality-of-earnings (not ops) | | I6 | H2 FY26 pre-ex | Pre-ex YoY +5.3% (FY +0.7%) | Operating EPS troughing with org OP +2% |

Half-year reported NS YoY (visual)

Phases: (1) Boom fade H1'23→H1'24 into ~−1% corridor; (2) False dawn FY25 organic +1.7%; (3) Relapse + quality reset FY26 — organic −2%, H1 trough, H2 less-bad, pre-ex EPS +0.7% under ~$2.4B exceptionals.

Is growth accelerating now? Reported revenue: sequentially re-accelerating off trough (+232 bps), still negative YoY. GAAP EPS: ignore. Pre-ex EPS: accelerating (H1 −2.5% → H2 +5.3%).

| # | Catalyst | Timing | Stance / watch | Implication | |---|----------|--------|----------------|-------------| | 1 | NAM share repair under MSD decline | F27; H1 F27 first hard check | CMD: NAM org NSR MSD down; mkt ~−3%; share improves vs F26 | Highest-weight stock catalyst | | 2 | US tequila (Don Julio / Casamigos) | F27–F28 | FY26 ~−21%; repositioning + FIFA residual; multi-year | Brand swing; category still weak at premium end | | 3 | ~$1B op framework + supply savings | ~40% of $850m in F27 | Funds competitiveness without OP step-down | Central F27 OP bridge | | 4 | F27 FCF trough ~$2B | FY27 | After ~$850m exceptional cash; vs $3B habit | Consensus reset if models still show ~$3B | | 5 | EABL + RCB delever | Cal H2 2026 | ~0.25x + ~0.1x; leverage mid 2.5–3.0x | Clean catalyst if closes on schedule | | 6 | Guinness capacity & growth | Into F27 | Beer Co ~+4%; GB double-digit; capacity CapEx | Positive self-help outside US spirits | | 7 | CWS / China / Shui Jing Fang | Ongoing | Multi-period drag; optional strategic review | Binary: demand stabilize or clean exit | | 8 | India prestige (~+7% organic) | Continuous | Prestige+ offset to DM weakness | Steady constructive mix | | 9 | MT algorithm (LSD NSR / MSD OP) | F27–F29 proof points | CMD reset vs historical 5–7% / 6–9% | Thesis: self-help compounder vs value trap | | 10 | Dividend / capital returns | Ongoing 30–50% | FY26 at 30% / 50¢ floor | Upside if payout migrates mid-range post trough |

Ranked watchlist (6–18 months): (1) US depletion/share & tequila tiers; (2) H1 F27 organic OP bridge (savings vs reinvestment); (3) EABL/RCB close; (4) Guinness service/capacity; (5) CWS trajectory; (6) Street F27 FCF/EPS revisions post-CMD.

Architecture: Morning FY26 webcast = prepared remarks only (no live Q&A; guidance deferred to CMD). Afternoon Capital Markets Day = full multi-analyst Q&A — this is the Street Q&A for the print.

Tally: 9 Well Answered · 4 Deflected / partial (strategy alternatives; buybacks/incentives; price-reset durability; post-FY29 hard-currency conversion).

| # | Analyst | Topic | Badge | |---|---------|-------|-------| | 1 | Simon Hales — Citi | Simplification vs more SKUs / RTDs | Well Answered | | 2 | Celine Pannuti — JPM | US market path; NAM OP LSD down 2yrs then flat | Well Answered | | 3 | Mitch Collett — DB | A&P ~16%; five strategic alternatives | Deflected (alts); A&P well answered | | 4 | Andrea Pistacchi — BofA | Distributor velocity; leverage / buybacks | Deflected (incentives + buyback timing) | | 5 | Chris Pitcher — Redburn | Forecast bias; FX plumbing | Well Answered | | 6 | Olivier Nicolai — GS | US RTD distribution; bolt-on M&A | Well Answered | | 7 | Edward Mundy — Jefferies | Performance culture; affordability pivot | Well Answered | | 8 | Sanjeet Aujla — UBS | Crown/Smirnoff/Captain; F29 OP algo | Well Answered | | 9 | Trevor Stirling — Bernstein | Customer priority; org healing | Well Answered | | 10 | Sarah Simon — MS | Cyclical thesis vs Guinness 0.0 | Well Answered | | 11 | Carlos Laboy — HSBC | Demand fulfilment; velocity culture | Well Answered | | 12 | Laurence Whyatt — Barclays | Price-reset sustainability | Partial deflect | | 13 | Matthew Ford — BNPP | Hard-currency drop-through post savings | Partial deflect |

Highest-signal answers

NAM OP path (Pannuti / Nik): Group mid-single-digit OP CAGR embeds framework savings. North America OP: low-single-digit down for next two years, flat to slightly positive in year three — not “suddenly great profit growth” because of investment in capability.

Brand teardowns (Aujla / John O’Keeffe): Casamigos was the price outlier (corrected). On Crown / Smirnoff / Captain: 7–8 year declines → start with proposition (packaging, architecture, flavours) — “I haven’t mentioned price… these brands need a fundamental reset.” Do not model broad US price cuts on core.

A&P 16% (Collett / Dave): History stepped A&P 16→~18 with no growth rate. 16 is an outcome of jobs-to-be-done funding — not a dial. Pushing 16→18 without right assets would destroy value.

Hard deflections: “I am sure you would [like to know the five strategic alternatives], but we won’t be sharing those with you.” Buyback timing: “No, definitely not!” on elaborating once inside 2.5–3x. Softest live answers: durability of price resets (“time will tell”), post-FY29 hard-currency conversion, extreme US downside scenarios (process answered more than contingency math).

Nine cross-period contradictions. Cards 1–7 are high severity (not mere evolving outlook). Rendered as red-border alert cards.

Headline: FY25 framing (similar organic NSR, mid-SSD OP, US stabilising, tequila reset, progressive dividend, RTM paying dividends) is largely incompatible with H1 admissions and the FY26 print. Several statements are not “nuance.”

Highest-conviction (ranked)

1. US premium tequila / spirits — negative. Category tequila ~−21%; down-trading; Diageo will reinvest/reposition into F27 → pricing/share fight risk for BF.B, Proximo/Cuervo, STZ high-end, private labels.
2. China white spirits / policy-exposed prestige — negative. Multi-year CWS drag + “government policy” language; isolate China, not pan-Asia (ex-CWS APAC would be LSD growth; India ~+7%).
3. Europe rum — negative. Explicit category decline behind Don Papa $287m impairment (Europe overall still +3% organic for DEO).
4. Beer / RTD / Guinness ecosystem — positive. Beer Co organic ~+4%; GB Guinness double-digit; SA RTD DD; capacity CapEx prioritised vs struggling high-end spirits.
5. India prestige / USL — positive. ~+7% organic; RCB exit (~0.1x leverage); Maharashtra excise clips lower prestige only.
6. EABL disposal — positive for DEO leverage (~0.25x); reshapes East Africa beer ownership map.
7. LatAm on-trade — positive inflection. Brazil confidence recovery post Q2 counterfeit-alcohol shock; Colombia strong.
8. Tariffs + cost inflation — industry GM headwind for import-heavy spirits (organic GP −$506m: mix, inflation, tariffs).
9. GLP-1 as spirits killer — challenged (H1 Lewis: limited spirits impact per ~60k-user survey; still live corporate stance).
10. Moët Hennessy stake — not for sale (H1 reaffirmation) removes forced-seller overhang on LVMH JV.

Macro snapshot from the print

| Theme | Management colour | Read-through | |-------|-------------------|--------------| | US consumer / disposable income | NAM −8.4%; tequila ~−21%; affordability deteriorated “much faster” than plan | Negative premium US spirits; relative positive value / RTD / beer | | China | CWS material drag; policy consequences; APAC ~−6% | Negative Baijiu / China prestige | | Inflation / tariffs | GP −$506m organically; tariffs explicit | Cost programs defend OP industry-wide | | Hyperinflation EMs | Turkey $786m goodwill impairment; volumes still DD on ground | Accounting noise ≠ demand wipeout | | Brazil / LAC | H2 confidence recovery post counterfeit scare | Constructive LatAm on-trade | | Rates | Not discussed | Delever is FCF/self-help, not a rates call |

Named entities with direct implications

| Entity | Fact | Implication | |--------|------|-------------| | EABL | 65% sale; ~0.25x delever; H2 cal 2026 close | DEO leverage path; Africa beer ownership shift | | USL / RCB | RCB sale ~0.1x; India ~+7% organic | Positive USL focus / India prestige | | Mey İçki (Turkey) | $786m impairment; volumes strong | Write-down ≠ volume collapse | | Don Papa | $287m impairment on Europe rum decline | Category signal for Europe rum peers | | FIFA | Official Spirits Supporter; locked NA H2 plans | Near-term activation; limited US plan flexibility mid-stream |

FY prepared remarks did not name Pernod, Brown-Forman, Constellation, Campari, Bacardi, Heineken, or ABI — peer implications above are category/geography inferences.

FY26 is a soft double on a rebased bar: sales in line, organic NSR at the best end of −2/−3, organic OP +2% and FCF $3.2B modest beats — funded by Accelerate cost-out and CapEx, not demand recovery. Reported OP/EPS are unusable (exceptionals); pre-ex EPS +0.7% and adj. EBITDA margin +100 bps show the underlying P&L stabilized. Trajectory: organic growth still decelerating multi-year; H2 sequentially less bad (+232 bps rev accel) with pre-ex EPS re-accelerating. CMD sets a clearer F27 path — flat sales, savings-funded OP, $2B FCF trough — constructive on OP vs H1 “invest may dilute,” below prior multi-year $3B FCF framing. Credibility still impaired by nine cross-period contradictions and hard Q&A deflections; the investment debate from here is whether NAM share can improve while still MSD down and whether ~$1B of framework savings fund a turnaround without OP step-down.