Diageo outlines plans for $1bn cost savings, shares fizz higher

(Sharecast News) - Diageo shares fizzed higher on Thursday as the drinks giant outlined plans to save around $1bn over the next three years alongside its full-year results. The company said the redesign of its operating framework will deliver around $850m of savings, while supply chain initiatives will deliver approximately $150m. Restructuring costs will total around $1.2bn, said the owner of Guinness and Johnnie Walker, among others.

News of the cost savings came alongside Diageo's results for the year to the end of June, which showed a 2% decline in organic sales to $19.6bn and a 27.2% drop in operating profit to $3.2bn, with organic operating profit growth offset mostly by exceptional restructuring costs and impairment charges.

Chief executive Dave Lewis said: "We are pleased with our progress in LAC, Europe and Africa. We are focused on recovering our competitiveness in NAM [North America] and we are working through the consequences of Government policy in Chinese white spirits.

"The three priorities set out at the half year: i) Relevant brands in competitive category strategies ii) Customer, Customer, Customer and iii) A more agile and competitive operating framework, are serving us well and lay the foundation for the Capital Markets Day today."

He said the revised operating framework is being rolled out across Diageo and the changes are "significant".

"These savings will allow us to invest in the turnaround without needing to reduce operating profit," said Lewis, the ex-Tesco boss nicknamed 'Drastic Dave'.

At 1250 BST, the shares were up 6.7% at 1,753.42p.

Richard Hunter, head of markets at Interactive Investor, said: "The reaction to Diageo's resolute update was immediate, positive and one of relief for an overdue transformation. Indeed, the share price performance has underlined the scale of the remedial work which needs to be undertaken, with a decline of 14% over the last year as compared to a gain of 19% for the wider FTSE100, a drop of 31% over the last two years and a vertiginous decline of 60% from the record set in December 2021.

"The tenure of the new CEO may be in its early stages and the turnaround proper not yet in train, but the group's longstanding supporters are clearly in evidence, which should result in the market consensus of the shares as a buy consolidating on prospects for Diageo's new phase."

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