New CEO Dave Lewis, who started with Diageo at the beginning of the year, says Americans are cutting back on spending and tightening their belts in a difficult economic climate.
Weak sales in the US - along with a plunge in sales in China - dragged Diageo’s H1 2026 results down: with organic net sales down 2.8% over the last six months of 2025.
Downgrading the company’s expectations for FY2026, Lewis has also cut the company’s dividend to shareholders.
Diageo tackles macro-economic challenges
Diageo has had a rocky few years: pandemic disruption was followed by a severe inventory crisis in Latin America. And now the company continues to face a ‘challenging consumer environment’ where consumers are spending less.
This is particularly pertinent in the US: where Diageo’s sales were down 7% over H1. That’s a key concern, given that North America makes up 40% of the company’s sales.
Diageo sums up the US market as an ‘increasingly competitive and cautious environment’.
A big challenge has been competition in tequila: affecting brands such as Don Julio and Casamigos (Diageo’s US tequila sales plunged 23% over H1).
Tariffs remain a headache: with continued uncertainty in this area (Diageo has modelled around a 10% rate on UK imports and 15% on European imports: estimating the impact of tariffs at around $200m a year. Previous estimates suggest around half of this can be mitigated by various strategies such as inventory management and supply chain optimization).
Meanwhile, Diageo’s sales in China also suffered over the first half of the year (down 42%) with weak consumption of Chinese white spirits.
‘Spirits is a very, very stable category’
Diageo is under scrutiny from investors after a tumultuous few years: with former Tesco boss Dave Lewis appointed as CEO to turn the company’s fortunes around.
However, the company’s H1 results show there is still plenty of work to be done. The company has downgraded its profit and sales expectations for 2026: now expecting sales to be down 2% to 3% because of the drag on US and Chinese sales (previous guidance had suggested sales would be flat to slightly down).
And organic operating profit is now expected to be flat to up low single digits (compared to previous guidance for mid-single-digit growth).
But Lewis, who started in the role last month, says the fundamentals of the company remain strong.
“The spirits category is a very, very stable category,” he said. “In fact, it’s one of the most stable I’ve ever seen.
“Between 2010 and 2024, volume growth is around 13%. The significant feature of the market is the strong trend to premiumisation. And Diageo deserves great credit here for seeing the opportunity and driving this trend. It was a fantastic strategy, and it developed a portfolio of truly exceptional brands.”
And he says consumption of spirits hasn’t materially changed: although the category does face headwinds from a difficult economic climate, putting pressure on disposable income.
However, there are some bright spots for Diageo. Guinness has performed extremely well: up 10.9% over H1 with growth in all regions apart from Asia Pacific. Diageo is investing in production with a new Littleconnell brewing, which will help increase capacity and accelerate the expansion of Guinness 0.0.
Non-alcoholic sales were up 14%, led by strong performance of Guinness 0.0 in Great Britain, Ireland and the US. Tanqueray 0.0 and Captain Morgan 0.0 also delivered strong double-digit growth.
And India is a key growth market for Diageo: a market where premiumisation is one of the top trends in beverage alcohol. Diageo’s organic net sales were up 8.7% thanks to growth in its Prestige & Above segment.
That includes whiskey brands such as Royal Challenge, Black & White and Signature, which delivered double-digit growth, as did Smirnoff vodka. The Johnnie Walker trademark also grew high-single-digits. Don Julio and Godawan also took advantage of growth in tequila and Indian single malt.
However, Diageo has taken the decision to sell East African Breweries to Asahi: concentrating its efforts in other regions.
