Diageo Plc (LON:DGE) has issued its fiscal 25 Q3 trading statement.
Strong Q3 organic net sales growth. On track for full year with sequential improvement in H2
· Reported net sales for the third quarter increased by 2.9% to $4.4bn, with positive organic growth partially offset by unfavourable foreign exchange and disposals.
· Organic net sales were up 5.9% in the quarter, with organic volume up 2.8% and positive price/mix of 3.1%.
· Performance in the quarter was supported by favourable phasing which we estimate contributed c.4% of Q3 group organic net sales growth, mainly from North America and to a lesser extent Latin America and Caribbean, and is expected to reverse in Q4.
· All regions delivered positive price/mix except Asia Pacific where continued consumer downtrading and adverse market mix impacted net sales.
· Full year fiscal 25 guidance for organic net sales and operating profit reiterated.
· Launching first phase of Accelerate programme to create a more agile operating model. We expect to sustainably deliver c. $3bn free cash flow per annum from fiscal 26, increasing as performance improves. This is supported by a c.$500m cost savings programme, which will enable both reinvestment in future growth and improved operating leverage. We expect to return to well within our target leverage ratio range of 2.5 – 3.0x no later than fiscal 28 providing us with a lot more flexibility, and which will also be supported by appropriate and selective disposals over the coming years.
Debra Crew, Diageo Chief Executive, said:
“In the third quarter we delivered strong organic net sales growth and are on track to deliver on our guidance of sequential improvement in organic net sales performance in the second half of fiscal 25. We also reiterated our organic operating profit outlook for fiscal 25, including the impact of tariffs based on what we know at this time. We continue to believe in the attractive long-term fundamentals of our industry and in our ability to outperform the market. We view the near-term industry pressure as largely macro-economic driven, with continued uncertainty impacting both the timing and pace of recovery.
Consistent with our strategic priorities and our focus on what we can manage and control, we are introducing the first phase of our Accelerate programme. This sets out clear near-term cash delivery targets and a disciplined approach to operational excellence and cost efficiency. It will strengthen Diageo by increasing our effectiveness, agility, and resilience. It will also ensure that we are well-positioned to deliver sustainable, consistent performance while maximising shareholder returns; even if current trading conditions persist.
We look forward to sharing more detail on Accelerate with our full year results in August.”
| Q3 ended 31 March 2025 | 9 months to 31 March 2025 | ||||||||
| Reported F25 | Reported F24 | Reported growth | Organic growth | Reported F25 | Reported F24 | Reported growth | Organic growth | ||
| $m | $m | YoY % | YoY % | $m | $m | YoY % | YoY % | ||
| Net sales | 4,376 | 4,253 | 2.9 | 5.9 | 15,277 | 15,215 | 0.4 | 2.4 | |
| Volume | – | – | – | 2.8 | – | – | – | 0.6 | |
Quarterly financials are unaudited. See pages 7-8 for an explanation and reconciliation of non-GAAP measures. Unrounded financials – due to rounding, the numbers in this and other tables in this release may not always cast or calculate. Unless otherwise noted, commentary throughout this release refers to organic net sales movement for the third quarter ended 31 March 2025 compared to the third quarter ended 31 March 2024.
Update on implications of recent tariff developments
Assuming the current 10% tariff remains on both UK and European imports into the US, that Mexican and Canadian spirits imports into the US remain exempt under USMCA, and that there are no other changes to tariffs, the unmitigated impact of these tariffs is estimated to be c.$150m on an annualised basis. Tariffs between the US and China do not have a material impact on our business. We expect that given the actions that we have in place already, before any pricing, we will be able to mitigate around half of this impact on operating profit on an ongoing basis. Looking ahead, we will continue to work on measures to mitigate this impact further. Our long track record of managing international tariffs gives us confidence in our ability to navigate this successfully. The expected impact in fiscal 25 and fiscal 26 is included in our guidance.
Fiscal 25 full-year outlook
Organic net sales growth
The increased growth rate in Q3 compared to the first half of fiscal 25 is mainly driven by phasing and does not change our expectations for fiscal 25 full-year growth from those communicated at fiscal 25 interim results in February 2025. In the second half of fiscal 25, we continue to expect to deliver a sequential improvement in organic net sales growth compared with the first half of fiscal 25.
Organic operating profit growth
We continue to expect a slight decline in organic operating profit in the second half of fiscal 25 compared with the prior year, broadly in line with the decline in the first half. This includes the impact of the tariffs currently announced which will impact fiscal 25.
Taxation
From and including our full year results for fiscal 25, we are changing how we report the effective tax rate, both pre and post exceptional items, and will exclude the share of after-tax results of associates and joint ventures from profit before tax. This will present a simpler calculation and is consistent with peer reporting. The historical impact of applying this approach over the last four years can be found in the appendix of this release.
On this new basis, we expect the tax rate before exceptional items for fiscal 25 to be in the region of 25%, broadly in line with fiscal 24, which was 25.1% on the same basis.
Effective interest rate
Given current market conditions and our debt maturity profile, we now expect the effective interest rate for the full year fiscal 25 to be slightly below full year fiscal 24, which was 4.3%.
Capital expenditure
In fiscal 25, as guided previously, we expect capital expenditure for the full year to be towards the upper end of the previously guided range of $1.3-1.5bn.
Leverage
We continue to expect leverage at the end of fiscal 25 to remain above the target leverage range of 2.5 to 3.0x (net debt to EBITDA), and now expect this to be in the range of 3.3 to 3.5x.
Fiscal 26 full-year outlook
We continue to expect to deliver positive operating leverage, with organic profit growth ahead of organic net sales growth. This includes the impact of US tariffs based on what we know at this time. We also expect to deliver c.$3bn free cash flow from the Accelerate programme.
Update on progress on reshaped priorities – introducing Accelerate
Today we are introducing the first phase of our Accelerate programme which sets out clear cash delivery targets and a disciplined approach to operational excellence and cost efficiency. This programme will represent a shift in how we do business, moving to a more agile global operating model, and is underpinned by our strong digital and data capabilities. This simplified approach will create a stronger platform to optimise investment and allocate resources effectively towards long-term sustainable growth.
This includes:
· Consistent cash delivery: we expect to sustainably deliver around c.$3bn free cash flow per annum from fiscal 26, increasing as the business performance improves.
· Cost savings: c.$500m cost savings programme over three years which will enable both reinvestment in future growth and improved operating leverage.
· Commitment to deleveraging: we expect to be well within the leverage target range of 2.5-3.0x net debt/EBITDA no later than fiscal 28 providing us with a lot more flexibility. This will be delivered through a combination of organic growth and positive operating leverage, combined with tighter capital discipline, and appropriate and selective disposals over the coming years.
We will share more details at our fiscal 25 results on 5 August 2025.
Q3 review
Organic net sales in Q3 grew 5.9% with a strong contribution from organic volume growth, up 2.8% and positive price/mix of 3.1%. Overall, organic net sales growth was supported by significant phasing benefits estimated to have contributed around 4% of organic net sales growth, with about two-thirds from NAM and most of the remainder from LAC. We expect most of this benefit to unwind in the fourth quarter, most significantly in NAM where a pull-forward of imported shipments in anticipation of tariffs favourably impacted results. NAM performance was also supported by continued tequila restocking given strong Don Julio consumer sales performance. In LAC, strong double-digit organic net sales growth was driven by lapping a particularly soft comparative period of significant destocking. To a lesser extent, Asia Pacific was also lapping an easier Q3 comparative period.
Net sales for Q3 and 9 months ended 31 March 2025
| Q3 ended 31 March 2025 | 9 months to 31 March 2025 | ||||||||
| Net sales | Reported F25 | Reported F24 | Reported growth | Organic growth | Reported F25 | Reported F24 | Reported growth | Organic growth | |
| $m | $m | YoY % | YoY % | $m | $m | YoY % | YoY % | ||
| North America | 1,903 | 1,796 | 5.9 | 6.2 | 5,998 | 5,880 | 2.0 | 2.0 | |
| Europe | 898 | 910 | (1.3) | (0.4) | 3,530 | 3,475 | 1.6 | 0.4 | |
| Asia Pacific | 803 | 805 | (0.2) | 1.6 | 2,913 | 3,011 | (3.3) | (1.4) | |
| LAC | 378 | 335 | 12.8 | 28.5 | 1,428 | 1,404 | 1.7 | 10.6 | |
| Africa | 369 | 385 | (4.1) | 10.1 | 1,313 | 1,360 | (3.5) | 9.3 | |
| Corporate | 25 | 22 | n/a | n/a | 95 | 85 | n/a | n/a | |
| Diageo Total | 4,376 | 4,253 | 2.9 | 5.9 | 15,277 | 15,215 | 0.4 | 2.4 | |
Q3 Regional performance
North America
· Organic net sales grew 6% driven by strong shipment growth in US Spirits despite softer US Spirits industry consumption in Q3 compared to the first half of fiscal 25.
· Price/mix grew 2% driven primarily by strong mix in US Spirits.
· US Spirits organic net sales were up 7%, ahead of depletions growth by c.5%, driven by a pull-forward of imports to distributors in anticipation of tariffs which we expect will reverse in Q4, and also tequila restocking given continued strong consumer sales performance.
· US Spirits depletions growth was ahead of consumption growth due to favourable comparatives, including lapping significant retailer destocking in Q3 fiscal 24.
Europe
· Organic net sales were broadly flat with performance overall supported by continued strong momentum in Guinness, offset by further softness in spirits across key markets.
· Price/mix grew 7% driven by continued strong Guinness performance and pricing in Turkey.
· Guinness organic net sales were up double digit in the quarter with continued momentum from both Guinness Draught and Guinness 0.0. Spirits organic net sales declined overall but our continued focus on tequila delivered growth from both Don Julio and Casamigos.
Asia Pacific
· Organic net sales grew 2% benefiting from favourable comparatives in this quarter with inventory reductions in South East Asia and Greater China in the prior year, and with continued growth in India. This growth was partially offset by ongoing retailer inventory destocking in Travel Retail Asia and the transition to the Guinness license brewing model in Australia and New Zealand which is expected to negatively impact net sales through calendar 2025.
· Price/mix declined 3% driven by continued downtrading and unfavourable market mix.
Latin America and Caribbean
· Organic net sales grew 29%, benefitting from lapping significant inventory destocking in Q3 fiscal 24, as well as continued stabilisation in the consumer environment.
· Price/mix grew 9% driven by lapping heavy promotional activity and consumer downtrading in the prior year.
· Brazil continued to deliver double-digit organic net sales growth in a more stable consumer environment, with some benefit from pricing. In Mexico, although the spirits industry remains challenged, it continues to show early signs of stabilisation.
Africa
· Organic net sales grew 10% driven by strong growth in both East Africa and South, West and Central Africa (SWC).
· Price/mix grew 11% driven by pricing across the region.
· In East Africa, all markets were in organic net sales growth with strong double-digit growth from Tanzania and Uganda. SWC growth was driven by double-digit organic volume and net sales growth in Ghana.
Live presentation and Q&A conference call
Debra Crew, Chief Executive and Nik Jhangiani, Chief Financial Officer will host a short presentation followed by Q&A at 9.30am UK (10.30am CET) on Monday 19 May 2025, which can be accessed at:
https://www.investis-live.com/diageo/67d1537b0a60c30015472054/atbw
For analysts and investors wishing to ask questions, please use the dial-in details below which will have a Q&A facility. Please dial in 15 minutes ahead of the scheduled start time to register before the call begins.
| From the UK: | +44 (0)20 3936 2999 |
| From the UK (free call): | 0800 358 1035 |
| From the USA: | +1 646 233 4753 |
| From the USA (free call): | +1 855 979 6654 |
| Access code: | 315266 |
Transcript and audio recording
Following the presentation and Q&A conference call, a transcript and audio recording can be accessed at:
https://www.diageo.com/en/investors/results-reports-and-events/results
Guinness event reminder:
On Tuesday 20 May 2025, Diageo is hosting a Guinness Investor and Analyst Event at the Guinness Storehouse in Dublin. From 13:00 (UK time), we will be hosting presentations and Q&A sessions from members of our Executive Committee and other leaders. The presentations and Q&A sessions will be available on a live webcast, which can be accessed at:
https://www.investis-live.com/diageo/67d1526d6c02e70016b5f241/oshtr
Presentation slides, recordings and transcripts
Following the presentations, slides, recordings and transcripts will be made available.
