Diageo Shares Edge Towards Lows as Sentiment Remains Weak

Diageo's shares (LON:DGE) are edging back towards recent lows, declining 1% today as sentiment struggles to find a bullish footing, despite an attempt to move higher late Sep. The DGE performance raises concerns about whether support will emerge around the 1,750p level, or if a further breakdown is imminent amidst a challenging market environment and a 30% year-to-date decline.

Factors Behind the Downturn

Looking back over the past two year, and the stock has fallen some 40%+. A profit warning issued in November 2023, stemming from a slowdown in the Latin American and Caribbean markets, triggered a significant drop in share value. Macroeconomic pressures in the region led consumers to shift towards more affordable alternatives, impacting Diageo's sales which derive approximately 11% of their total revenue from this region. The unexpected nature of this announcement contributed to a 14% plunge in the company's stock price at the time.

Adding to the uncertainty, Diageo withdrew its medium-term target for organic sales growth in February of this year. This decision was attributed to the impact of U.S. tariffs on its tequila and Canadian whisky products, projecting a gross impact of $200 million on operating profit for the fiscal year. The withdrawal of the forecast further dampened market confidence in Diageo's near-term prospects.

Leadership changes have also played a role in shaping investor sentiment. In July, Debra Crew stepped down as CEO after a two-year period marked by a 44% drop in Diageo's share value. Nik Jhangiani, the Chief Financial Officer, was appointed as interim CEO as part of the company's efforts to revitalize performance and reduce debt. Following the announcement, Diageo's shares experienced a temporary increase of around 3%, suggesting a cautiously optimistic, yet uncertain, response.

In an effort to address ongoing challenges, Diageo unveiled a $500 million cost-saving plan in May, targeting completion by 2028. This initiative aims to generate approximately $3 billion in annual free cash flow starting in fiscal 2026 and reduce the company's debt burden. So far, sentiment has proved stubbornly bearish, and today's move simply continues the trend.

The current share price movement underscores the market's cautious stance, as Diageo navigates regional sales pressures, tariff implications, and leadership transitions. The 1,750p level may represent a support point, but the potential for a breakdown remains a possibility. A retest of lows, pending support, or a further breakdown? Time will tell.