Diageo Shares Climb on New CEO's $1 Billion Cost-Cutting Plan

Diageo shares surged approximately 8% following the announcement of a significant cost-cutting initiative spearheaded by the company's new chief executive, Dave Lewis. The drinks giant aims to reduce expenses by $1 billion, equivalent to £740 million, over the next three years as part of a comprehensive restructuring plan designed to revive its market performance.

Lewis, formerly the chief executive of Tesco and nicknamed 'Drastic Dave,' is set to detail the strategy, which is anticipated to involve substantial workforce reductions and supply chain optimization. The move comes as Diageo, the maker of brands like Guinness, Johnnie Walker, and Smirnoff, reported a 2% decline in sales for the fiscal year ending June 30. While Guinness sales have shown strength in the UK and Ireland, the company has faced challenges with weaker spirits sales in North America and Asia Pacific, contributing to a 4% drop in overall volume sales.

Strategic Focus and Financial Outlook

Diageo's turnaround strategy will prioritize enhancing the competitiveness of its product portfolio. This includes increased investment in the rapidly growing category of ready-to-drink canned beverages, which the company views as having significant long-term growth potential. Additionally, Diageo plans to accelerate investments to capitalize further on the success of its Guinness brand.

The company also indicated a potential refresh of its pricing strategies to better appeal to consumers who are increasingly budget-conscious. For the current financial year, Diageo projects broadly flat organic net sales growth, with a mid-single-digit decline expected in North America. Profit growth is anticipated to be in the low-to-mid-single-digit range, driven by the cost savings realized throughout the year and efficiencies gained in the supply chain.

Diageo also announced that its final dividend would be reduced to 30 cents per share, down from 62.98 cents per share in the previous year. The full-year dividend, which will be put before investors at the November annual meeting, is set to be 50 cents per share. Analysts suggest this dividend cut, while significant, was anticipated by the market given the company's recent financial performance.