Diageo Shares Jump as New CEO Unveils $1bn Cost-Cutting Plan Despite Weak Results

Diageo (LON: DGE), the drinks group behind Johnnie Walker and Smirnoff, saw its shares jump after new chief executive Sir Dave Lewis unveiled a $1bn cost-savings plan alongside a weak set of full-year results.

The stock closed yesterday at 1,732.5p, up 5.58% from Wednesday’s close of 1,641p, and was trading at 1,767.5p, up 2.02%, this morning. The 52-week range spans 1,295.5p to 2,064.48p.

Diageo’s full-year results showed net sales down 3% to $19.6bn, with North America sales down 9.1%. Operating profit fell 27% to $3.2bn and net profit dropped almost 23% to $2bn. Alongside the figures, Lewis, nicknamed “Drastic Dave” for his cost-cutting record at Tesco, used the same day’s Capital Markets Day, a set-piece event where management lays out strategy to investors, to set out his first full turnaround plan since taking charge in January.

The plan targets $1bn in savings, split between roughly $850m from operations and $150m from the supply chain, at an estimated restructuring cost, the one-off expense of redundancies and reorganisation, of around $1.2bn. Redundancy payments for the year already reached $514m, up from $73m the year before. Diageo also halved its proposed dividend. Earnings per share came in at $0.949, above the consensus estimate of $0.6602, though down from $1.5035 a year earlier.

“This new strategy, executing with a new, more agile, competitive and cost-effective operating model, gives us confidence that we can return Diageo to a business consistently creating value for shareholders,” said Sir Dave Lewis, Diageo’s chief executive. Chris Beckett, an analyst at broker Quilter Cheviot, said the cuts were deeper and would last longer than many had expected.

The halved dividend and $1.2bn restructuring charge underline the scale of the challenge Lewis has set out to fix. North America sales are still falling.