Can Diageo’s $500 Million Cost Cutting Plans Shift Stock Sentiment?

Diageo shares (LON: DGE) have come under pressure in recent years, down 47% since the start of 2022 as attitudes surrounding some of the firm's products shift.

The world's largest spirits manufacturer's share price fell a further 1.07% in early trading today, despite posting strong Q3 revenue of $4.4 billion (+~3%).

Also coming on the day is news that Diageo have announced a strategic plan to save $500 million in costs by 2028. This decision follows several years of declining sales and aims to bolster the company's financial health and shareholder returns.

The plan is expected to deliver approximately $3 billion in free cash flow annually starting from fiscal year 2026. CEO Debra Crew highlighted that these measures are aimed at ensuring sustainable performance and maximizing shareholder returns. The announcement also came after Nik Jhangiani's appointment as the new finance chief.

Another aspect of Diageo's financial strategy includes addressing the impact of U.S. tariffs. The company now anticipates a $150 million annualised effect from these tariffs, down from an earlier estimate of $200 million. This revision reflects a slightly improved view on the tariff's impact on their business.

Diageo generates around 45% of its sales in the United States, with a significant portion of its products made in Mexico or Canada. The firm is affected by a 10% levy on imports from regions such as Britain and the European Union. Despite these challenges, Diageo reported a 5.9% rise in third-quarter organic sales, largely attributed to accelerated shipments to North America ahead of the tariff impositions.

This cost-saving initiative represents Diageo's response to both internal challenges and external economic factors, setting a course for financial stabilization and growth in the coming years. Whether these factors alone will prove sufficient to shift sentiment in the near term is unlikely, but the firm is clearly taking positive steps to improve financials.