Diageo’s Shares Slide as Q1 Sales Flat Amid China Weakness and US Consumer Softness

Diageo (LON: DGE), the beverage giant, reported flat organic net sales growth for the first quarter of fiscal year 2026, ended September 30, 2025.

Volume growth of 2.9% was entirely offset by a negative price/mix of 2.8%, reflecting challenges in key markets.

Net sales declined 2.2% to $4.9 billion, impacted by disposals, with negligible impact from foreign exchange. The negative price/mix was primarily due to weakness in Chinese white spirits (CWS) within the Asia Pacific region. Excluding CWS, price/mix would have been relatively flat.

Solid organic net sales growth in Europe, Latin America and the Caribbean (LAC), and Africa was counteracted by declines in North America and Asia Pacific. The North American decline reflected a softer consumer environment in the U.S. while the Asia Pacific weakness stemmed from the aforementioned issues with CWS.

Diageo estimates that the CWS weakness in China negatively impacted group net sales by approximately 2.5% in the quarter.

Diageo reaffirmed its commitment to delivering approximately $3 billion in free cash flow in fiscal 26. The company also aims to return to within its target leverage ratio range of 2.5-3.0x no later than fiscal 28, supported by strategic disposals.

Driver Breakdown

• Regional Disparities: Growth in Europe, LAC, and Africa was offset by declines in North America and Asia Pacific.
• Category Performance: Scotch and beer (Guinness) showed good growth, while Chinese white spirits and tequila in North America experienced weakness.
• Cost Savings: The “Accelerate” program is on track to deliver approximately $625 million in cost savings over the next three years.

The flat sales growth and revised guidance may create short-term volatility in Diageo's stock. Markets will be closely watching the company's ability to execute its “Accelerate” program and mitigate the impact of challenges in China and the U.S.

Interim Chief Executive Nik Jhangiani stated, “We are not satisfied with our current performance and are focused on what we can manage and control; acting with speed to drive efficiencies, prioritising investment and adapting more quickly to an evolving consumer environment.”

Jhangiani added that the company is well advanced in sharpening its strategy and implementing plans to drive growth across the broader portfolio.

Diageo updated its full-year outlook for fiscal 26, expecting organic net sales growth to be flat to slightly down, factoring in the adverse impact from Chinese white spirits and a weaker US consumer environment.

Organic operating profit growth is expected to be low to mid-single digit, also reflecting these challenges. Capex is expected at the lower end of the $1.2-1.3 billion range with an effective interest rate of approximately 4.0%.