Johnnie Walker parent announces dividend cut to 20 cents as new chief executive implements cost-cutting regime amid falling sales and share price drop
Guinness owner Diageo is cutting costs(Image: NurPhoto via Getty Images)
Guinness producer Diageo has reduced its dividend as the cost-cutting approach of new chief executive ‘drastic’ Dave Lewis starts to bite, triggering a share price tumble.
The board revealed the “difficult” decision to trim its dividend to 20 cents to “accelerate the strengthening” of its balance sheet in its half-year results, the first financial update since Sir Dave Lewis assumed control.
Diageo’s share price dropped by as much as 6.5 per cent in Wednesday’s early trading, although the stock is still up nine per cent this year.
The FTSE 100 heavyweight, which also owns spirit labels Smirnoff, Johnnie Walker and Captain Morgan’s, has endured squeezed margins in recent years as consumers shift towards low-alcohol alternatives and budget brands.
The dividend reduction arrives as Diageo fell short of analyst forecasts, recording a four per cent decline in sales – steeper than the three per cent which was anticipated – in the six months to December 2025, as reported by City AM.
The group posted net sales of $10.5bn and an operating profit of $3.1bn, down 1.2 per cent.
The board attributed this declining profit to challenging market conditions and the impact of tariffs.
The Guinness-maker’s stock has fallen over 15 per cent in the past 12 months and suffered a sharp decline in November after operating profit growth for 2026 was downgraded to low to mid single digits.
Diageo had previously experienced a decline in sales across Latin America and the Caribbean, as financially stretched consumers opted to drink less and trade down to cheaper brands.
In November 2023, the company was compelled to issue a trading update outlining its weaker-than-anticipated performance in the region, which accounted for nearly 11 per cent of its net sales value.
However, Wednesday’s results pointed to a recovery in the region, with sluggish sales in North America and China instead weighing on overall growth.
The spirits giant recorded a 7.4 per cent decline in net sales in North America, which represents 36 per cent of its total sales, alongside a 13 per cent fall in Asia Pacific, which makes up 18 per cent of its market.
Sales, however, grew in Europe (up 4.9 per cent) and Latin America and the Caribbean (6.3 per cent).
“We believe this was largely due to further macroeconomic and geopolitical uncertainty, and weak consumer confidence in key markets,” the report stated.
Diageo had previously cautioned that it faced a $200m annual hit from the impact of Trump’s tariffs on US imports from the UK and Europe, and on Wednesday confirmed this headwind was set to persist.
Although the firm’s share price edged higher following the Supreme Court’s ruling that the President’s tariffs were unlawful, the report noted it was premature to revise its forecasts. The board stated: “We note the recent ruling on tariff policy by the United States Supreme Court and the subsequent statements by the US Administration, and also the potential for tariff increases in the future. We will continue to monitor developments.”
Lewis acknowledged there are “significant opportunities” for the beleaguered spirits-maker to turn around its fortunes.
He stated: “To deliver on these opportunities, we need to create more financial flexibility. Accordingly, the Board has taken the difficult decision to reduce the dividend to a more appropriate level which will accelerate the strengthening of our balance sheet. “.
“We are confident that this is the right action which will ensure that Diageo can reinforce its position as the leading international spirits business and drive stronger shareholder value over the coming years.”
Diageo employs more than 4,500 people across 64 UK sites, including 29 distilleries in Scotland and a packaging plant in Runcorn.
Dan Lane, lead analyst at Robinhood UK, said: “Reducing the dividend never looks good but Dave Lewis was brought in to make the hard decisions and if it steadies the ship it may be worth the short-term pain.
“Until volumes and prices start to motor again, this looks more like Diageo trying to regain its footing rather than the start of a new growth leg. Expect to see a few more reviews of business units – cost control is key and underperforming brands may well get the chop.”
Lewis earned the moniker ‘Drastic Dave’ following his reputation for ruthless cost-cutting and restructuring whilst at Unilever, before spearheading an extensive transformation at Tesco, where he served as chief executive between 2014 and 2020.
Drastic Dave assumed control in January, replacing Debra Crew, who unexpectedly resigned with immediate effect in July after merely two years at the helm.
Wednesday morning’s six per cent share price decline left the Guinness producer’s stock down 19.8 per cent year-on-year.
Adam Vettese, market analyst at eToro, said: “New CEO Dave Lewis faces a baptism of fire, prioritising debt reduction over pay-outs, eroding Diageo’s dividend allure.
“Some investors may be tempted seeing that the shares look cheap versus history, especially if US rebounds, but repeated downgrades signal execution risks in a tough macro environment.”
