Diageo plans cost cuts, asset sales to reduce debt

By Shashwat Awasthi and Emma Rumney

(Reuters) -Diageo unveiled a plan on Monday to cut $500 million in costs and make substantial asset disposals by 2028, as the maker of Johnnie Walker whisky and Guinness beer looks to turn around its performance and reduce its debts.

Cost cuts would come from changes to Diageo's trade investment and advertising spend, overheads and supply chain, finance chief Nik Jhangiani told investors.

The world's largest spirits maker is also expected to dispose of some significant assets, but hold on to its Guinness brand, to help reduce its leverage ratio from 3.1 times net debt to operating profit at end-2024 to between 2.5 and 3 times.

"We see... some opportunities for what I would call substantial changes versus portfolio trimming," Jhangiani said. "It's clearly going to be above and beyond the usual smaller brand disposals you've seen over the last three years."

CEO Debra Crew later told reporters that "nothing has changed" with regards to well-performing beer label Guinness, which Diageo ruled out selling earlier this year.

The cost cuts will help Diageo deliver about $3 billion free cash flow per annum from fiscal 2026, the company said. It also revised down its expected hit from U.S. tariffs as the threat of levies on Mexico and Canada receded.

The plan did not include large-scale redundancies, though some changes to headcount through approaches such as slower hiring may be included, Crew said.

Jhangiani joined in September as the company struggled with falling sales and wavering investor confidence.

Investors welcomed his plans, though its stock gave up earlier gains to trade 0.7% down by 1111 GMT.

"You can see that (Diageo) is gradually getting its act together again," said Richard Scrope, manager of the VT Tyndall Global Select fund that holds Diageo stock.

TARIFF HIT REDUCED

Turning around a "supertanker" like Diageo however, takes time, said Rob Burgeman, investment manager at another Diageo investor RBC Brewin Dolphin.

The company still faces difficult trading conditions in key markets like the United States and Europe.

U.S. President Donald Trump's 10% tariff on imports from places like Britain and the European Union will also deal a $150 million hit to Diageo's operating profit per annum, the company estimated.

That is lower than the roughly $200 million it had previously estimated for the second half alone. Since its previous estimate in February, threats of a 25% levy affecting Mexican tequila and Canadian whisky have not materialised.

The company reported a 5.9% rise in third-quarter organic sales, largely thanks to an acceleration in shipments to North America ahead of the imposition of tariffs.

(Reporting by Shashwat Awasthi and Emma Rumney; Editing by Sherry Jacob-Phillips and Emelia Sithole-Matarise)