I’d coveted Diageo (LSE: DGE) shares for years. So when they dipped after a profit warning back in November 2023, I snapped them up.
Profits slipped due to troubles in just one corner of its vast global market, Latin America and the Caribbean. Cash-strapped drinkers were trading down to cheaper local brands, plus there were stocking issues. It didn’t seem lethal to me. Unfortunately, it turned out to be the start of the FTSE 100 spirit giant’s precipitous decline.
The Diageo share price has now plunged 56% over three years and 33% over 12 months. Every time it falls into generational bargain territory, it falls again, plunging another 11% over the last month. Has it finally hit rock bottom?
Drinkers in Latin America aren’t the only ones baulking at paying extra for the premium spirits brands that Diageo specialises in. Wallets are stretched in China, the US and Europe too.
Falling FTSE 100 knife
US tariffs have made a bad situation worse, hitting imports of Mexican tequila and Canadian whisky. Diageo was a huge beneficiary of the dash to globalisation, selling more than 200 brands to nearly 180 countries around the world. Yet as the world retreats into trading blocks, that’s not the magic bullet it was.
Is alcohol generally? a magic bullet Gen Z appears to be abstemious. Weight loss drugs dull the appetite for drink too, I’ve read. Yet alcohol remains a huge social lubricant, and humans have been boozing in one form or other for millennia.
Diageo is still making a heap of money. In full-year 2025, it posted net profits of $2.54bn. Unfortunately, that was a drop of almost 40% on 2024’s $3.87bn. Restructuring costs, unfavourable currency swings and higher finance charges were the issue. Net sales fell just 0.1% to $20.25bn.
Unfortunately, there was more bad news on 6 November, when the board cut full-year sales and profit forecasts for 2026. It blamed struggling US consumers and a decline in sales of Chinese white spirits. That’s the problem with an internationally diversified company, you don’t know where the next blow will come from.
A cyclical recovery?
There are positives for new investors. The shares look good value, with a price-to-earnings ratio of 13.4. The trailing dividend yield is more than 4.8%, far more than Diageo has paid in years.
Investing goes in cycles. Companies get soft in the good times, then toughen up. Diageo is now working to embed “a more rigorous performance driven culture across the business”.
It’s also made what I think is a terrific move, appointing Dave Lewis CEO from January. He’s the man who turned Tesco around. If he can repeat that magic here, Diageo really could be a generational bargain. I think Lewis is the number one reason to consider Diageo shares today.
It’s likely to be hard going, as another difficult year for the global economy will hit drinkers too. But I think Diageo is worth considering, although investors risk further short-term pain before they see the long-term gain. I’m sorely tempted to average down myself. It’s a bit of a punt, yes, but at this level, it’s very hard to resist.
