Investors cheer Diageo's flat results in tough spirits market

By Shashwat Awasthi and Emma Rumney

LONDON (Reuters) -Diageo reported a smaller than expected fall in annual profit on Tuesday and said it expected to have a permanent new CEO by October, soothing investor concerns in a tough time for the spirits sector and driving its shares up nearly 7%.

The world's top spirits maker, whose former boss Debra Crew stepped down in July, said that it could soak up most of the hit from U.S. President Donald Trump's import tariffs.

The results sent Diageo's shares up as much as 6.5%, which later moderated, even as the maker of Johnnie Walker whisky and Smirnoff vodka forecast flat sales for its current 2026 financial year.

Investors said that even this relatively muted result was welcome, signalling a possible turning point after a period of guidance downgrades, missed forecasts and concerns about management.

Crew's sudden exit left Diageo looking for a new CEO and finance chief to turn around its performance, and guide it through a plan announced in May to cut costs and make substantial asset sales by 2028.

Interim CEO Nik Jhangiani told journalists he expected a decision on a permanent CEO by the end of October.

"We have delivered what we said we would deliver," he said of the company's full-year performance, adding, however there was a lot more work to do. He looked to reassure investors about U.S. tariffs on goods imported from European countries and beyond.

"We believe we could largely mitigate about 50% of that, and that is before any pricing actions," Jhangiani said, adding the company had opportunities to improve pricing across its portfolio and across geographies if needed.

Spirit makers globally have struggled amid prolonged, industry-wide sales declines as high interest rates and inflation have hit consumers' wallets.

Rising competition from alternatives like cannabis drinks, shifts towards drinking less, the emergence of weight-loss drugs and threats of steep tariffs in the United States, Diageo's largest market, have also made investors nervous.

Diageo's shares have been hammered in recent years, losing 30% of their value this year alone.

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The company was looking to address its challenges through initiatives like smaller pack sizes and growth in premixed products like canned cocktails, targeting younger drinkers and those looking to moderate their consumption, Jhangiani said.

It also increased its cost savings target to $625 million, about $125 million more than its previous aim.

Diageo's plans addressed challenges in the market head-on and offered a clear strategy to adapt and grow, which had been lacking before, said Kunal Kothari, UK equities fund manager at Diageo shareholder Aviva Investors.

"It definitely has more credibility," he said of the company's approach, adding, however, it still needed to be executed effectively.

The question of leadership also needed to be answered before investors could buy in fully: "You need to know who is going to be in charge," said Jack Martin, portfolio manager at Oberon Investments.

Diageo increased the estimated impact of U.S. tariffs to $200 million annually, from $150 million previously, after Washington imposed a 15% rate on goods imported from the EU.

(Reporting by Shashwat Awasthi in Bengaluru and Emma Rumney in London. Editing by Subhranshu Sahu, Mark Potter, Susan Fenton and Emelia Sithole-Matarise)