Cast your mind back to the end of last year. The Diageo (LSE: DGE) share price had been in the doldrums and its chief executive shown the door after a short term in office that the market deemed a failure. Excitement was high about the imminent arrival in the chief executive’s chair of Sir Dave Lewis, formerly of Tesco.
As a Diageo shareholder, I did not share that excitement then and still do not. I will explain why in a moment.
How has the Diageo share price fared since then?
So far this year, it has fallen 6% even from its former battered price. In the same period, the wider FTSE 100 index has moved up 5%.
Bear in mind that this is in just under half a year. That represents a significant underperformance.
What’s going on – and could more time help?
One of the new boss’s first moves was to halve the interim dividend.
Bear in mind that, until a couple of years ago, the distiller and brewer had been growing its dividend per share annually for decades.
This drastic medicine may have been meant to signal big change. But it struck me as unnecessary and undermining a key part of the investment case.
Seen more positively, though, the cost saving on dividends could potentially help improve Diageo’s cash flows. After all, the company spent roughly £1.7bn on paying equity dividends last year.
But the bigger picture here is about the alcohol industry, not just Diageo. Younger generations are consuming less alcohol than previous ones. That may change, or it could be a permanent structural change in the market.
Meanwhile, Diageo’s premium brands seem less well-suited to economically uncertain times like we are in now. That could change over time, but in the short term I see no easy fixes for the Johnnie Walker owner.
This year’s share price fall concerns me
The underperformance of the Diageo share price this year concerns me.
It suggests that the market is not yet convinced that current management can provide the necessary turnaround in business performance.
Six months is a short time to try and demonstrate tangible progress at a huge business like Diageo.
A trading statement last month did show that net sales revenues in the most recent quarter grew year on year.
Still, weakness in the key North American market remains a problem. As Sir Dave said, “our offer needs to be more competitive”.
Perhaps surprisingly, that concerns me. Last year, I had wanted Diageo to choose a new chief executive with deep experience in the alcohol industry, luxury goods, or preferably both. Sir Dave’s time at Tesco – widely seen as a success – was focussed on price competitiveness and keeping a lid on costs.
That works at a large supermarket that aims to offer low prices. It will not, in my opinion, fix the core challenges of a company that has invested hugely over many years to persuade consumers that its premium tipples merit a hefty price tag.
The company’s proven cash generation potential and premium brand portfolio mean I am loathe to sell my shares at a loss. But I will not be buying any more.
I see the weak Diageo share price performance so far in 2026 as a bad sign of how the market perceives its turnaround is progressing.
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Christopher Ruane owns shares in Diageo.
