An updated edition of the Sept. 26, 2025, article.Investing in the stock market often brings to mind themes of growth, innovation, and long-term value creation, but beneath the surface lies a niche segment that has historically delivered outsized returns: sin stocks. These are companies operating in industries often considered socially or morally controversial, including alcohol, tobacco, gambling, weapons manufacturing, and, at times, cannabis. Despite their reputational baggage, sin stocks tend to benefit ...

Core Viewpoint - Diageo has appointed Sir Dave Lewis as the new CEO, concluding the search for a successor after Debra Crew's departure in July. Lewis will officially take on the role in January 2026, with interim CEO Nik Jhangiani leading the company through December [1][2]. Leadership Changes - Sir Dave Lewis, former CEO of Tesco, has extensive experience in leading major brands and will bring his leadership skills to Diageo. He has also chaired Haleon and serves as a non-executive director at PepsiCo [2][3]. - Deirdre Mahlan will continue to support the transition as interim CFO, having returned to the role in July [2]. Market Outlook - Lewis acknowledges the challenges in the market but also sees significant opportunities for Diageo. He aims to work with the team to create shareholder value [3][4]. - Diageo recently revised its sales and profit guidance, expecting organic net sales growth to be flat to slightly down, influenced by the Chinese white spirits market and a weaker US consumer environment [4][5]. Financial Performance - For the fiscal first quarter, Diageo reported flat organic net sales, with a 2.2% decline on a reported basis to $4.9 billion. The North America business saw a 2.7% decline in organic net sales, amounting to $1.84 billion, impacted by a challenging consumer goods environment [5][6].

Financial Performance - Diageo's net sales reached $49 billion, a 2% year-over-year decrease [2] - Organic sales remained flat, although better than analysts anticipated [2] - Sales in China decreased by more than 7% [3] - Organic sales in the US fell nearly 3% [3] Market Trends and Consumer Behavior - Consumers are trading down to cheaper alternatives, impacting premium tequila brands like Don Julio and Casamigos [3] - A clear shift down in quality consumption is observed as consumers tighten their wallets [4] - The premium spirits industry is experiencing a post-pandemic slowdown due to inflation, moderation trends, and tariffs [4] - Gen Z consumers are drinking less, influenced by fitness and health trends [6] - Economic worries affect Hispanic and non-Hispanic consumers, impacting beer sales [7] Company Outlook and Leadership - Diageo cut its guidance due to changing consumer behavior [4] - Investors are advised to await further guidance after the holiday season [5] - Diageo's CEO Deborah Crew left in July, and a replacement is yet to be named [5]

Core Insights - Diageo, the world's largest spirits maker, has reduced its sales and profit outlook following a disappointing quarterly performance, with shares hitting a decade low [1][2] Financial Performance - Net sales for Diageo were reported at $4.9 billion, reflecting a 2% year-over-year decline, while organic sales remained flat, which was better than analysts' expectations [2] - Volumes increased nearly 3%, but this was insufficient to improve overall results due to adverse impacts from pricing and product mix [2] Regional Performance - Latin America showed strong demand, particularly in Brazil, while sales in China and the US faced significant declines, with China experiencing a drop of over 7% [3][4] - In the US, organic sales fell nearly 3%, as consumers shifted from premium brands like Don Julio and Casamigos to more affordable options [3][4] Market Trends - The premium spirits industry is experiencing challenges post-pandemic, with inflation, moderation trends, and tariffs affecting global trade [4] - A notable shift in consumer behavior is observed, with a trend towards lower-quality products as consumers tighten their spending [4] Leadership and Future Guidance - Diageo's leadership is currently unstable, with the CEO leaving in July and no replacement announced, leading to a message of waiting for further guidance after the holiday season [5] Demographic Insights - There are significant demographic shifts affecting consumption patterns, particularly among Gen Z consumers who are drinking less due to health and wellness trends [6] - Concerns about the economy are prevalent among Hispanic and non-Hispanic consumers, impacting various sectors, including beer [7][8]

Financial Data and Key Metrics Changes - In Q1, organic net sales were flat, with reported net sales of $4.9 billion down 2.2% year-over-year, primarily impacted by the disposal of Guinness Nigeria and the Shiraz North America transaction [8][9] - Organic volume growth was 2.9%, offset by a negative price mix of 2.8%, largely due to the adverse impact of Chinese white spirits [8][9] - The company updated its fiscal guidance, now expecting organic net sales growth to be flat to slightly down for the fiscal year, with organic operating profit growth projected in the low to mid-single-digit range [15][17] Business Line Data and Key Metrics Changes - North America saw organic net sales decline by 2.7%, with U.S. spirits down 4.1%, while Diageo Beer Company grew by 9.2% [9][10] - Europe experienced organic net sales growth of 3.5%, driven by strong performance in Guinness Draught and spirits, particularly in Turkey and the Middle East [10][11] - Asia-Pacific faced a 7.5% decline in organic net sales, primarily due to reduced consumption of Chinese white spirits, which negatively impacted regional sales by approximately 13% [10][11] Market Data and Key Metrics Changes - In LAC, organic net sales grew by 10.9%, led by strong performance in Brazil, while Africa reported 8.9% organic sales growth, with broad growth across East Africa and Southwest and Central Africa [11][12] - The tequila category in North America is experiencing increased competitive pressure, with a decline in overall category growth from 10% in 2023 to just under 3% [32][35] - The company noted a shift in consumer behavior, with consumers trading down from super premium to premium products, impacting sales of Don Julio and Casamigos [35][36] Company Strategy and Development Direction - The company is advancing its "Accelerate" program to strengthen its foundations for long-term sustainable growth, with a focus on cost efficiency and process simplification [12][18] - Management is committed to improving operating leverage and enhancing commercial execution, particularly in key markets [13][15] - The company is exploring selective disposals of non-core assets to focus on growth opportunities in RTDs and brand activation during major events like FIFA 2026 [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed concern over current performance, particularly in North America, and emphasized the need for urgent actions to drive growth [5][6] - The economic environment is weighing on consumer sentiment, leading to weaker-than-expected results in the U.S. [9][15] - Despite challenges, management remains confident in delivering $3 billion in free cash flow for fiscal 2026, supported by ongoing initiatives [12][17] Other Important Information - The company is implementing a clearer decision-making framework to enhance speed and agility in operations [14][15] - Management highlighted the importance of maintaining brand equity while optimizing marketing spend across different markets [56][59] Q&A Session Summary Question: Insights on U.S. spirits performance and guidance - Management acknowledged the complexity of U.S. spirits performance, noting a decline in depletions and the impact of tariff-related pre-buys [21][22] Question: Competitive pressure in the tequila market - Management discussed increased competition in the tequila category, emphasizing the need for strategic interventions to improve performance [31][32] Question: EBIT guidance and margin support - Management expressed confidence in achieving low to mid-single-digit EBIT growth despite market challenges, citing cost efficiencies and stronger whiskey performance [45][47] Question: Impact of A&P reductions - Management clarified that A&P reductions in GB were part of a broader strategy to optimize marketing spend while maintaining brand equity [55][56] Question: Accelerate program details - Management provided insights into the Accelerate program, highlighting its role in driving efficiencies and improving resource allocation [63][66]

Financial Data and Key Metrics Changes - In Q1, organic net sales were flat, with reported net sales of $4.9 billion down 2.2% year-over-year, primarily due to the disposal of Guinness Nigeria and the Shiraz North America transaction [5][8][9] - Organic volume growth was 2.9%, offset by a negative price mix of 2.8%, largely due to the impact of Chinese white spirits [8][9] - The company updated its fiscal guidance, now expecting organic net sales growth to be flat to slightly down for the fiscal year, with organic operating profit growth projected in the low to mid-single-digit range [15][17] Business Line Data and Key Metrics Changes - North America saw organic net sales decline by 2.7%, with U.S. spirits down 4.1%, while Diageo Beer Company grew by 9.2% [9][10] - Europe experienced organic net sales growth of 3.5%, driven by strong performance in Guinness Draft and spirits, particularly in Turkey and the Middle East [10][11] - Asia-Pacific reported a 7.5% decline in organic net sales, primarily due to reduced consumption of Chinese white spirits [10][11] Market Data and Key Metrics Changes - In North America, the tequila category faced increased competitive pressure, leading to a decline in sales, while Scotch and ready-to-drink products showed strong growth [9][10][32] - Latin America (LAC) reported a robust organic net sales growth of 10.9%, led by double-digit growth in Brazil [11] - Africa saw organic sales growth of 8.9%, with broad growth across East Africa and Southwest and Central Africa [11] Company Strategy and Development Direction - The company is advancing its "Accelerate" program to strengthen its foundations for long-term sustainable growth, with a focus on cost efficiency and commercial execution [12][19] - There is a clear strategy to improve operating leverage and enhance decision-making frameworks across the organization [14][15] - The company is committed to returning to its target leverage ratio range of 2.5-3 times by fiscal 2028, supported by selective disposals [17][18] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging operating environment, particularly in the U.S. and Asia-Pacific, and emphasized the need for urgency in driving growth [5][6] - The management expressed confidence in achieving $3 billion in free cash flow for fiscal 2026, supported by ongoing cost management initiatives [12][17] - There is a focus on adapting to changing consumer preferences, particularly in the spirits category, and leveraging opportunities in ready-to-drink products [19][84] Other Important Information - The company is experiencing a shift in consumer behavior, with a trend towards smaller sizes and lower-priced products, particularly in the tequila category [32][36] - The management is actively addressing legal challenges related to tequila credentials, ensuring consumer confidence in product quality [43] Q&A Session Summary Question: Insights on U.S. spirits performance and guidance - Management noted that U.S. spirits declined 4.1% in Q1, with some benefits from tariff pull-forwards and highlighted the need to monitor consumer takeoff closely [21][22][23] Question: Competitive pressure in the tequila market - Management acknowledged increased competition in the tequila category and discussed strategies to improve performance for brands like Don Julio and Casamigos [31][32][34] Question: EBIT guidance and margin support - Management expressed confidence in achieving low to mid-single-digit EBIT growth despite challenges, citing cost efficiencies and stronger whiskey performance as key factors [46][48][49] Question: A&P spend reduction and efficiency - Management clarified that A&P development spend was reduced by optimizing agency use and reallocating resources for better returns [57][58][61] Question: Accelerate program and savings - Management confirmed that 40% of the savings from the Accelerate program would be delivered this fiscal year, emphasizing the importance of effective resource allocation [65][66][68]

Financial Data and Key Metrics Changes - In Q1, organic net sales were flat, with reported net sales of $4.9 billion down 2.2% year-over-year, primarily impacted by the disposal of Guinness Nigeria and the Shiraz North America transaction [6][7][10] - Organic volume growth was 2.9%, offset by a negative price mix of 2.8%, largely due to the adverse impact of Chinese white spirits [6][10] - The company updated its fiscal guidance, now expecting organic net sales growth to be flat to slightly down for the fiscal year, with organic operating profit growth projected in the low to mid-single-digit range [13][16] Business Line Data and Key Metrics Changes - North America saw organic net sales decline by 2.7%, with U.S. spirits down 4.1%, while Diageo Beer Company grew by 9.2% [7][10] - Europe experienced organic net sales growth of 3.5%, driven by strong performance in Guinness Draft and spirits, particularly in Turkey and the Middle East [9][10] - In Asia-Pacific, organic net sales declined by 7.5%, significantly affected by the downturn in Chinese white spirits, which impacted regional net sales by approximately 13% [9][10] Market Data and Key Metrics Changes - Latin America and Caribbean (LAC) reported organic net sales growth of 10.9%, led by strong performance in Brazil [10] - Africa showed organic sales growth of 8.9%, with broad growth across East Africa and Southwest and Central Africa [10] - The tequila category in North America faced increased competitive pressure, leading to a decline in overall performance [29][30] Company Strategy and Development Direction - The company is focused on sharpening its strategy and implementing initiatives to drive growth across its portfolio, particularly through the Accelerate program [5][11] - There is an emphasis on improving commercial execution and optimizing trade spend, with a commitment to delivering $3 billion in free cash flow for fiscal 2026 [11][16] - The company is also exploring selective disposals of non-core assets to enhance focus on core growth areas [17] Management's Comments on Operating Environment and Future Outlook - Management expressed concern over the current performance, particularly in North America, and acknowledged the need for urgent actions to drive growth [4][5] - The economic environment is weighing on consumer sentiment, leading to a cautious outlook for the U.S. market [7][10] - Management remains confident in the long-term growth potential of the portfolio, particularly in RTDs and Guinness [17][18] Other Important Information - The company is making progress on cost efficiency and process simplification, which are expected to contribute positively to margins [11][48] - The impact of foreign exchange on reported sales was negligible during the quarter [6] - The company is committed to returning to its target leverage ratio range of 2.5-3 times by fiscal 2028 [16] Q&A Session Summary Question: Insights on U.S. market performance and guidance - Management acknowledged the complexities in the U.S. market, noting that net sales were ahead of depletions, with depletion NSV down about 7% [20][22] - The impact of tariff pre-buying and seasonality was discussed, with management indicating that the unwinding of these factors would not be material in Q2 [24][25] Question: Competitive pressure in the tequila category - Management highlighted increased competitive pressure in the tequila category, with consumers trading down and shifting preferences impacting performance [28][30] - The company is focusing on its portfolio, particularly Don Julio and Casamigos, to adapt to changing consumer behaviors [30][32] Question: EBIT guidance and margin support - Management expressed confidence in delivering low to mid-single-digit EBIT growth despite challenges, citing cost discipline and operational efficiencies as key factors [44][46] - Input costs, particularly for agave, were noted but not seen as a major factor in efficiencies [51][52] Question: A&P spend reduction and efficiency - Management clarified that A&P development spend was reduced by optimizing agency use and reallocating resources for better returns [56][58] - The focus remains on maintaining brand equity while improving marketing efficiency across markets [58][59] Question: Details on the Accelerate program - Management provided insights into the Accelerate program, emphasizing its role in driving savings and improving operational effectiveness [61][64] - The program aims to enhance decision-making speed and resource allocation across the organization [64][65] Question: Margin and operating leverage - Management confirmed that 40% of savings from the Accelerate program would be realized this year, ahead of previous guidance [69][70] - The impact of depletions and consumer behavior in North America was discussed, with management indicating that these factors would be managed throughout the year [71][74]

Core Viewpoint - Diageo has cut its guidance due to disappointing sales performance, particularly in North America and Asia Pacific, leading to a decline in net sales and a reassessment of growth expectations for the fiscal year [2][7]. Sales Performance - Diageo's net sales for the three months ending September were $4.9 billion, reflecting a decline of 2.2% primarily due to asset disposals [2]. - Organic net sales remained flat, with group volumes increasing by 2.9% year on year, but negatively impacted by a price/mix decline of 2.8% [3]. - The company attributed weak sales in Asia Pacific to poor performance in Chinese white spirits, which reduced quarterly net sales by approximately 2.5% [3]. Regional Performance - North America, Diageo's largest market, saw reported net sales drop by 3.5%, with an organic decline of 2.7% attributed to a challenging consumer goods environment and increased competition, particularly in tequila [4][5]. - In contrast, Europe reported a 5.1% increase in net sales on a reported basis and a 3.5% increase organically, driven by strong performance in Guinness [5][6]. Guidance and Future Outlook - Following the weak quarter, Diageo now expects full-year organic net sales to be flat to slightly down, revising previous expectations of zero growth [7]. - Organic operating profit growth is now anticipated to be in the low to mid-single digits, down from mid-single-digit projections [7]. - The company maintains its free cash flow guidance of $3 billion for the full year and aims for cost savings of $625 million over three years through its Accelerate restructuring program [8]. Leadership and Strategy - Interim CEO Nik Jhangiani emphasized the need for improved performance and swift action to drive efficiencies and adapt to changing consumer environments [9]. - The company is focused on refining its strategy and implementing plans to foster growth across its portfolio [9]. - Analysts express concerns regarding leadership stability following the abrupt departure of former CEO Debra Crew, highlighting the importance of securing a credible leader to restore investor confidence [10].

Financial Performance - Fiscal Year 26 Q1 organic net sales growth was flat, but reported sales were negatively impacted by disposals[9, 10] - The flat organic net sales growth reflects an approximate 2.5% impact from Chinese white spirits[8, 21] - Adverse price/mix offset positive volume, largely driven by market conditions[8, 21] Regional Performance - Europe experienced strong growth at +3.5%, while Latin America and Caribbean grew +10.9%, and Africa +8.9%[12] - North America saw a decline of -2.7% due to a weaker US consumer environment and tequila category weakness[12] - Asia Pacific experienced a decline of -7.5%, impacted by weakness in Chinese white spirits[12] Future Outlook - Fiscal Year 26 free cash flow guidance is reiterated at approximately $3 billion, underpinned by managing maturing stock, A&P effectiveness, capex, and costs[8, 21] - Fiscal Year 26 organic net sales growth is expected to be flat to slightly down, including the impact from Chinese white spirits and a weaker US consumer environment[18] - Fiscal Year 26 organic operating profit growth is expected to be low to mid-single digit, updated for the revised organic net sales growth, including Accelerate and tariffs impact[18] Strategic Initiatives - The Accelerate programme is progressing well, simplifying the operating model for clearer, faster decision-making[8, 21] - The company aims for approximately $625 million in cost savings over 3 years through the Accelerate programme[15]

Group 1: Diageo - Diageo is known for brands like Guinness, Captain Morgan Rum, and Crown Royal Canadian Whiskey, and it pays a semiannual dividend with a yield of 4.4% based on recent payments [1][2] - The company pays out approximately 50% of its earnings as dividends, which is standard for its industry [2] - Analysts forecast an 18% increase in the annual dividend by 2029, with the stock currently trading at a discount of over 25% to its fair value estimate of $130 per ADR share [3] Group 2: GlaxoSmithKline (GSK) - GSK has historically paid out about 70% of normalized earnings as dividends, which has limited its ability to reinvest in R&D and acquisitions [4] - Following the divestment of its consumer group in 2022, GSK lowered its dividend to a more appropriate level, which is now considered secure and likely to grow in line with earnings over the next 5 years [4] - GSK's US ADR shares provide a quarterly payout of $0.32, translating to an annual dividend rate of $1.70 and a yield of 3.7%, with the stock trading at a 20% discount to fair value [5] Group 3: Kimberly-Clark - Kimberly-Clark is a leading manufacturer in the tissue and hygiene space, recognized as both a dividend aristocrat and a dividend king, having increased its annual dividend payout for 53 consecutive years [6] - The company announced a 3.3% dividend hike for 2025, consistent with its 5-year annualized dividend growth rate of 3.4% [6] - The stock currently yields 4.3%, slightly above its 5-year average, and the long-term outlook calls for mid-single-digit annual dividend growth [7]