Diageo(US:DEO) Financial Modeling Prep·2026-02-25 21:00Core Viewpoint - Diageo PLC reported a decline in earnings and announced a significant dividend cut as part of a strategic reset under new CEO Sir Dave Lewis to enhance financial flexibility and support investments in competitiveness and portfolio growth [1][3]. Financial Performance - Adjusted basic earnings per share for the half-year ended December 31, 2025, were 95.3 cents, down 2.5% year-over-year [1]. - Net sales reached $10.46 billion, reflecting a 4.0% decline on a reported basis and a 2.8% decline organically [1]. - Organic operating profit declined 2.8% to approximately $3.256 billion, consistent with sales trends [2]. Dividend and Guidance - The interim dividend was halved to 20 cents per share from 40.5 cents, reflecting a revised payout policy targeting 30-50% of earnings [1]. - Diageo updated its fiscal 2026 outlook, now expecting organic net sales to decline 2-3% and organic operating profit growth to be flat to up low-single-digits [3]. Market Dynamics - The organic decline was primarily driven by weakness in North America, particularly in the U.S. spirits and tequila categories, and continued softness in Chinese white spirits [2]. - Strong growth was noted in Europe, Latin America & Caribbean, and Africa, partially offsetting declines in other regions [2]. Strategic Initiatives - The company is targeting around $3 billion in free cash flow and emphasizes deleveraging efforts, including proceeds from planned disposals [4]. - New CEO Sir Dave Lewis highlighted the need to address weak demand and enhance competitiveness while framing the dividend rebase as a step towards building flexibility for a turnaround [6]. Financial Metrics - Diageo's trailing price-to-earnings (P/E) ratio is around 20-21x, with a price-to-sales ratio of approximately 2.4x and enterprise value to sales around 3.5x [5]. - Debt-to-equity remains elevated at roughly 2.2x, with a current ratio of 1.63 indicating solid short-term liquidity [5].