Diageo plc Sponsored ADR (DEO.US) Q1 organic sales unexpectedly grew 1.4%: North America's 3.6% decline was a drag, full-year flat guidance maintained unchanged

On November 5, before the U.S. market opened, Diageo plc Sponsored ADR (DEO.US), the world's largest spirits manufacturer, released its fiscal 2027 first-quarter results. The report showed Q1 net sales of US$4.931 billion, up 1.2% year on year; organic net sales grew 1.4% year on year, defying analysts' prior expectations of a decline. Organic volume grew 1.1%, with price and product mix contributing 0.3 percentage points; excluding East African Breweries (EABL), which has been signed for sale, organic net sales grew only 0.6% and volume fell 0.1%. By region, Latin America and the Caribbean grew 4.8% organically, Asia Pacific grew 4.1%, India grew 3.4%, and Europe, Middle East and Africa combined grew 2.4%, driven mainly by Turkey, Africa and the Middle East, with Italy and France weak. North America remained the biggest drag, with organic net sales down 3.6% and volume down 3.7%, including a 3.7% decline in the United States, where tequila brands Don Julio, Casamigos and Crown Royal all posted double-digit declines, only partly offset by growth in Johnnie Walker; the company said packaging quality issues at Casamigos weighed on ready-to-drink spirits performance. By category, whisky, Guinness and Smirnoff ready-to-drink products achieved growth. The company maintained its fiscal 2027 guidance unchanged, expecting organic net sales to be broadly flat, with North America expected to decline mid-single digits (assuming a market decline of about 3%); organic operating profit to grow low-to-mid single digits, including about 40% of the roughly US$850 million in cost savings from the new operating structure and about 25% of the roughly US$150 million in savings from the supply chain program; capital expenditure of about US$1.25 billion; and free cash flow of about US$2 billion (including about US$850 million in restructuring special charges). On currencies, based on spot rates as of October 31, the full-year negative impact on net sales is estimated at about US$100 million. CEO Dave Lewis said the first quarter was overall in line with expectations and that the full-year guidance had been reaffirmed, with growth in Latin America, Europe Middle East and Africa, Asia Pacific and India satisfactory, and North America still the biggest challenge but "clear actions are underway," calling the first-quarter performance "a small step in the right direction." According to the company's annual report, since taking office in January he has cut about 2,000 positions, equivalent to 6% of the global workforce. He has also asked teams to find cost-saving opportunities and introduced a simplified management hierarchy. In addition, the sale of East African Breweries to Asahi Group is expected to be completed in the second half of 2026, and the sale of the Royal Challengers Bengaluru cricket team is also progressing.