Diageo – Dear Dave: Where is the Debate?
Source: Jefferies
February 2, 2026
After over 80 meetings with investors following the publication of our report, we summarise key feedback. Bears are worried around category growth, in particular the US, and Diageo’s share position. Bulls see an opportunity for Dave to drive a stronger performance culture, strengthen the b/s, take out costs and accelerate growth. The stock is inexpensive and investors are looking for both an earnings floor and a plan to reset the trajectory from here.
1. Dave is well liked. Investor feedback on the new CEO is consistent: “aggressive,” “taskmaster”, “strong mandate”, “galvanising leadership qualities” and is viewed as “strategic” and “experienced”. He will approach Diageo with “an appropriate level of impatience” and will not “kick the can down the road.”
2. Do we get a reset? In our report Dear Dave, we cut F27 -10% to reflect both the current tough trading conditions and a profit reset as the business gears up for growth to resume. Street is currently modelling F27 EPS 164c, which would imply a further -10% downside risk vs our levels, which should be the low point. Fresh money is looking for a reset as a clearing event, and an opportunity to buy in at the low point.
3. Does he cut the dividend? We have cut the dividend by 50% which will help to accelerate deleveraging to 2.9x by the end of F27. Disposals could accelerate this to 2.4x and opens the door for potential SBBs or redeployment behind inorganic growth initiatives. Many income investors do not think a divi cut is necessary given the disposals programme, however others see some merit provided it puts the business in a stronger position. Fresh money would view a divi cut as the low point and an opportunity to buy the shares.
4. When do we get a plan? Short term money would like a plan and an earnings reset with results on 25 Feb. However, the overall consensus view is that an update will come no earlier than May and no later than August. Fresh money is generally reluctant to commit before seeing the plan and what this could mean for med-term growth, profits, cash and returns.
5. Portfolio, M&A, and MH. Questions persist on what to do with MH: buy more, sell, or restructure distribution. Investors also see scope for non-core disposals but worry about selling at cyclical lows. Many want clarity on which categories Diageo really backs.
. What about the US? The US is receiving the most attention given continued soft Nielsen data, risk of inventory destocking, price resets, weak consumer confidence on top of the broader debate on alcohol as highlighted in our Future of Alcohol trilogy I, II, III. Most investors have some sympathy with our view that the strategy needs to be built on the basis that the industry could remain subdued however there significant opportunities to diversify growth streams, address affordability, drive broader pack format flexibility, rebuild muscle in the on-trade amongst other things.
6. What about the non-US business? Europe execution is improving and Guinness is a tailwind; Latam scotch will recover with a boost from primaries; Africa is a smaller part of the business today ex-EABL; Asia should see structural tailwinds in India and the rate of decline in China will moderate into 2H or SJF is potentially sold.
7. What is the cost savings opportunity? Despite years of productivity programmes, most investors believe that a fresh pair of eyes can unlock further efficiencies. Whilst the opportunity is not as much as $2bn, there is likely more to go for than the current $625m programme and Dave has a strong mandate for change. What are the opportunities to accelerate cost efficiencies across A&P, overheads and trade spend, with savings reinvested behind growth?