Financial Trends -- 4/10
Diageo presents a deteriorating financial picture. Revenue is essentially flat on an organic basis
(+1.7% FY25) but reported net sales are declining (-0.1% FY25, -4.0% H1 FY26) due to FX headwinds
and tariff disruption. Operating profit (pre-exceptional) has declined for two consecutive periods
(-4.1% FY25, -3.4% H1 FY26), indicating negative operating leverage. Pre-exceptional EPS is falling
(-8.6% FY25, -2.5% H1 FY26). Leverage has risen from 2.5x to 3.4x over three years, well above
the 2.5-3.0x target. Buybacks have been suspended. FCF is the one bright spot at $2.7B in FY25,
and the Accelerate program ($625M savings) may inflect margins in FY26.
Weight: 25%
H1 FY26 Net Sales
$10,460M
-4.0% YoY | FX + tariff headwinds
H1 FY26 Pre-Exc EPS
95.3c
-2.5% YoY | decline moderating
FY2025 Op Margin (Pre-Exc)
28.2%
-110bps YoY | compressing
Net Debt / EBITDA
3.4x
vs 2.5x in H1 FY23 | above target
Net Sales Trajectory (Semi-Annual, USD M)
Revenue flat-to-declining on a reported basis, with H1 FY26 decelerating to -4.0% YoY.
Full-year FY2025 reported net sales were essentially flat at $20,245M (-0.1% vs FY2024). Organic
revenue returned to modest growth of +1.7% in FY2025, but H1 FY26 reported a -4.0% decline driven
by FX headwinds, tariff disruption, and continued US/China consumer weakness. Management guided
H1 FY26 organic sales slightly negative with growth skewed to H2. The organic growth in FY2025
of +1.7% was flattered by the Ciroc transaction (+1.5% ex-Ciroc).
| Metric | H1 FY24 | FY2024 | H1 FY25 | FY2025 | H1 FY26 |
|---|---|---|---|---|---|
| Net Sales ($M) | $10,962M | $20,269M | $10,901M | $20,245M | $10,460M |
| Reported YoY | — | — | -0.6% | -0.1% | -4.0% |
| Organic Growth | — | -0.6% | 1.0% | 1.7% | — |
FY2026E ~$20.4B, FY2027E ~$21.2B consensus. Organic net sales +1.7% FY25 (+1.5% ex-Ciroc). Data sourced from Daloopa.
Operating Profit and Margin (Pre-Exceptional, USD M)
Negative operating leverage: organic revenue growing but operating profit declining.
Pre-exceptional operating profit declined -4.1% in FY2025 and -3.4% in H1 FY26, despite organic
revenue growing +1.7% in FY25 -- a clear negative operating leverage signal. Full-year pre-exceptional
op margin compressed ~110bps from 29.3% (FY24) to 28.2% (FY25). H1 FY26 shows early stabilization
at 31.1% vs 30.9% in H1 FY25 (+20bps). Reported operating profit was hammered in FY25 (-27.8%)
by ~$1.4B in exceptional charges (Distill Ventures, Aviation impairment, Accelerate restructuring).
Management guides mid-single-digit organic operating profit growth for FY2026.
| Metric | H1 FY24 | FY2024 | H1 FY25 | FY2025 | H1 FY26 |
|---|---|---|---|---|---|
| Op Profit Pre-Exc ($M) | $3,510M | $5,945M | $3,372M | $5,704M | $3,256M |
| Pre-Exc YoY | — | — | -3.9% | -4.1% | -3.4% |
| Pre-Exc Op Margin | 32.0% | 29.3% | 30.9% | 28.2% | 31.1% |
| Op Profit Reported ($M) | $3,317M | $6,001M | $3,155M | $4,335M | $3,116M |
| Reported YoY | — | — | -4.9% | -27.8% | -1.2% |
FY25 reported op profit includes ~$1.4B exceptional charges. FY26 guidance: mid-single-digit organic op profit growth. Data sourced from Daloopa.
Adjusted EBITDA (LTM, USD M)
Adjusted EBITDA declining consistently, from $7.2B to $6.5B over two years.
LTM Adjusted EBITDA has declined from $7,195M (H1 FY24) to $6,497M (H1 FY26), a cumulative drop
of ~10%. The rate of decline is moderating slightly from -5.6% (FY25 vs FY24) to -4.4% (H1 FY26
vs H1 FY25), but the trend remains firmly negative. This decline is consistent with the operating
profit trajectory and reflects FX headwinds, higher staff costs, and route-to-market investments.
| Metric | H1 FY24 | FY2024 | H1 FY25 | FY2025 | H1 FY26 |
|---|---|---|---|---|---|
| Adj. EBITDA LTM ($M) | $7,195M | $7,037M | $6,796M | $6,645M | $6,497M |
| YoY Growth | — | — | -5.5% | -5.6% | -4.4% |
| Reported EBITDA LTM ($M) | $7,288M | $6,838M | $6,522M | $6,026M | $6,063M |
LTM = Last Twelve Months. Data sourced from Daloopa.
Earnings Per Share (Pre-Exceptional, Cents)
Pre-exceptional EPS declining, but rate of decline is moderating.
Pre-exceptional EPS fell from 179.6c (FY24) to 164.2c (FY25, -8.6%) and from 97.7c (H1 FY25)
to 95.3c (H1 FY26, -2.5%). The decline is driven by lower operating profit, higher interest
costs, adverse FX, and reduced Moet Hennessy contribution. Reported basic EPS was severely
impacted in FY25 at 105.9c (-38.9%) due to ~$1.4B in exceptional charges. H1 FY26 reported
EPS showed a +3.0% improvement as the exceptional impact lapped. The moderating rate of decline
in pre-exceptional EPS is a potential early inflection signal.
| Metric | H1 FY24 | FY2024 | H1 FY25 | FY2025 | H1 FY26 |
|---|---|---|---|---|---|
| Pre-Exc EPS (cents) | 108.1c | 179.6c | 97.7c | 164.2c | 95.3c |
| Pre-Exc EPS YoY | — | — | -9.6% | -8.6% | -2.5% |
| Basic EPS Reported (cents) | 98.6c | 173.2c | 87.1c | 105.9c | 89.7c |
| Reported EPS YoY | — | — | -11.7% | -38.9% | 3.0% |
FY2026E ~170c, FY2027E ~182c pre-exceptional EPS consensus. Data sourced from Daloopa.
Free Cash Flow (USD M)
FCF is the bright spot -- improving through FY25 with a credible $3B target.
Free cash flow improved from $2,609M (FY24) to $2,748M (FY25, +5.3%), driven by working capital
management. H1 FY26 shows a -9.7% decline to $1,532M, but FCF is typically H2-weighted for Diageo.
Management has committed to ~$3B annual FCF from FY26 onward through Accelerate savings and CapEx
discipline (trending to mid-single-digit % of net sales). This is the one financial metric showing
genuine improvement and supports the deleveraging thesis.
| Metric | H1 FY24 | FY2024 | H1 FY25 | FY2025 | H1 FY26 |
|---|---|---|---|---|---|
| Free Cash Flow ($M) | $1,462M | $2,609M | $1,696M | $2,748M | $1,532M |
| YoY Growth | — | — | 16.0% | 5.3% | -9.7% |
Management targets ~$3B annual FCF from FY26. FCF typically H2-weighted. Data sourced from Daloopa.
Regional Net Sales Breakdown (USD M)
Europe is the sole growth engine in H1 FY26; NAM and APAC are declining sharply.
In H1 FY26, Europe and Turkey grew +4.9% driven by Guinness strength and improved Southern Europe
operations. Latin America and Caribbean rebounded +7.4% on recovery from destocking. However,
North America (-5.3%) faces tariff disruption and consumer caution, while Asia Pacific (-9.7%)
suffered from Greater China weakness and SE Asia downtrade. Africa declined -5.2% on Nigerian
naira FX headwinds. The geographic mix is shifting unfavorably, with higher-margin NAM and APAC
declining while lower-margin regions grow.
| Metric | H1 FY24 | FY2024 | H1 FY25 | FY2025 | H1 FY26 | H1 YoY |
|---|---|---|---|---|---|---|
| North America | $4,411M | $8,514M | $4,403M | $8,636M | $4,168M | -5.3% |
| Europe & Turkey | $4,349M | $8,024M | $4,440M | $8,037M | $4,658M | +4.9% |
| Africa | $1,352M | $2,478M | $1,412M | $2,684M | $1,338M | -5.2% |
| Latin America & Caribbean | $1,442M | $2,432M | $1,371M | $2,390M | $1,473M | +7.4% |
| Asia Pacific | $3,564M | $6,320M | $3,480M | $6,082M | $3,143M | -9.7% |
H1 YoY = H1 FY26 vs H1 FY25 reported growth. Data sourced from Daloopa.
Leverage Trajectory (Net Debt / EBITDA)
Leverage has deteriorated materially, rising from 2.5x to 3.4x over three years.
Net debt/EBITDA increased from 2.5x (H1 FY23) to 3.4x (FY25 and H1 FY26), well above the 2.5-3.0x
target range. Total net borrowings stand at ~$21.7B. Debt has grown faster than revenue -- net
borrowings rose ~$1.2B from H1 FY24 while net sales declined. Share buybacks have been suspended
to prioritize deleveraging. Management committed to returning within the 2.5-3.0x range by no later
than FY28 through selective disposals (Guinness Nigeria/Ghana), Accelerate savings, and CapEx discipline.
This is a key risk factor.
| Metric | H1 FY23 | FY2023 | H1 FY24 | FY2024 | H1 FY25 | FY2025 | H1 FY26 |
|---|---|---|---|---|---|---|---|
| Net Debt/EBITDA | 2.5x | 2.6x | 2.9x | 3.0x | 3.1x | 3.4x | 3.4x |
| Metric | H1 FY24 | FY2024 | H1 FY25 | FY2025 | H1 FY26 |
|---|---|---|---|---|---|
| Net Borrowings ($M) | $20,483M | $21,017M | $20,676M | $21,854M | $21,672M |
Target range: 2.5-3.0x. Deleveraging commitment by FY28. Buybacks suspended. Data sourced from Daloopa.
Share Count and Capital Return
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Shares Outstanding (M) | 2,460M | 2,432M | 2,432M |
Share count flat -- no dilution, but no buybacks either.
Shares outstanding fell slightly from 2,460M (FY23) to 2,432M (FY24) from prior buyback program,
then held flat at 2,432M in FY25 as buybacks were suspended to prioritize deleveraging. Weighted
average basic shares declined marginally (-0.5%) due to residual timing effects. Dividend held
flat in FY25. The lack of buybacks is a negative relative to peers like BUD which are accelerating
capital returns.
Buybacks paused FY25 to focus on deleveraging. No dilution. Data sourced from Daloopa.
Acceleration / Deceleration Analysis
| Signal | Detail | Direction |
|---|---|---|
| Reported Revenue | FY25 -0.1%, H1 FY26 -4.0%; FX and tariff headwinds driving deceleration | Decelerating |
| Organic Revenue | Returned to +1.7% in FY25 after -0.6% in FY24; H1 FY26 guided slightly negative | Sluggish / Choppy |
| Operating Profit (Pre-Exc) | -4.1% FY25, -3.4% H1 FY26; declining despite modest organic revenue growth | Declining |
| Operating Margin | FY24 29.3% to FY25 28.2% (-110bps); H1 FY26 31.1% vs H1 FY25 30.9% (+20bps) | Compressing / Stabilizing |
| Pre-Exceptional EPS | -8.6% FY25, -2.5% H1 FY26; decline rate moderating | Declining (moderating) |
| Free Cash Flow | +5.3% FY25; $3B target FY26; H1 dip likely phasing | Stable / Improving |
| Leverage | 2.5x to 3.4x over 3 years; above target range; debt growing faster than revenue | Deteriorating |
| North America | H1 FY26 -5.3%; tariff disruption + consumer caution; lapping Don Julio build | Weakening |
| Asia Pacific | H1 FY26 -9.7%; Greater China weakness, SE Asia downtrade | Deteriorating |
| Accelerate Program | $625M savings over 3 years (raised from $500M); credible self-help lever | Positive Catalyst |
Score Derivation
| Factor | Assessment | Impact |
|---|---|---|
| Revenue YoY | Organic +1.7% FY25 but decelerating; reported -4.0% H1 FY26; guided ~flat organic FY26 | 4-5 |
| Margins | Op margin compressing ~110bps FY25; H1 FY26 shows slight stabilization; Accelerate may help | 3-4 |
| Share Count | Flat; no buybacks, no dilution | 5 |
| Free Cash Flow | Improving FY24 to FY25 (+5.3%); $3B target credible; H1 dip likely phasing | 5-6 |
| EPS | Pre-exc EPS declining -8.6% FY25, -2.5% H1 FY26; rate moderating | 3-4 |
| Blended Base Score | Revenue barely growing organically, margins compressing, EPS declining, FCF resilient | ~4.5 |
| Penalty: Negative Op Leverage | Organic revenue +1.7% but organic op profit -0.7% in FY25; persists H1 FY26 | -1 |
| Penalty: Debt Growing > Revenue | Net debt/EBITDA 2.5x to 3.4x; net borrowings up while revenue flat/declining | -1 |
| Adjusted Score | 4.5 - 2.0 penalties = 2.5, rounded to 3 | 3 |
| Mitigant: Forward Inflection | FY26 mid-single-digit organic op profit growth guidance; Accelerate $625M savings; $3B FCF; margin stabilizing | +1 |
| Net Adjustment | -1 (op leverage) -1 (debt) +1 (forward inflection) = -1 | -1 |
| Final Score | Base ~4.5 minus 1.0 net adjustment, rounded | 4/10 |
Data sourced from Daloopa and Diageo earnings transcripts (FY2024, H1 FY25, FY2025). FYE June 30, semi-annual reporting. Reports in GBP, ADR trades in USD.