Diageo's surprise sales uptick gives Lewis's reset an early lift

What happened this quarter

Diageo posted an unexpected gain in quarterly revenue, with organic net sales up 1.4% for the three months to September despite forecasts calling for a decline. Broad strength across regions offset continuing softness in North America.

Guinness and Smirnoff Ice stood out as strong sellers, and Lewis said whisky returned to growth globally in the period. The company kept its outlook for the year unchanged, still calling for flat net sales growth.

Diageo also saw at least 10% growth in the unit that houses East Africa Breweries Limited. It agreed last year to sell its majority holding in EABL to Japan's Asahi Group Holdings.

The turnaround and leadership moves

Lewis, who took over in January, is leaning on cost reductions and more affordable labels. Since arriving, he has eliminated about 2,000 jobs, asked teams to find further savings, and streamlined management.

"We're learning different ways of working," he told analysts, calling the fiscal first quarter "a small step in the right direction." His scorecard so far: "80% of what we're doing is working, 20% of it we're not getting it right the first time and having to regroup and do it again."

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He has also reshaped the leadership bench, naming former Tesco colleague Joanne Wilson as the next CFO. Wilson is currently the finance chief at advertising group WPP Plc and will succeed Nik Jhangiani next year.

Street read and the setup ahead

"After a prolonged period of uncertainty and inconsistency, these results should be viewed as an early indication that Diageo's new strategy has put the group on the right track," Citi analyst Simon Hales wrote. Investors seemed to agree, sending the shares up to a 5.2% gain intraday in London, the steepest since August, and positioning the stock about 13% higher year to date through Wednesday.

Lewis cautioned the backdrop "remains challenging," partly because the war in the Middle East is pressuring energy, logistics and distribution. In the US and Europe, the company and its peers are contending with weakened demand as inflation-squeezed consumers pull back and moderation trends curb alcohol purchases.

Why it matters for your portfolio

Diageo's path forward hinges on fixing internal issues rather than big buy or sell moves, with Lewis flagging past overbuilding in supply chain capacity that lifted costs without the payoff. The near term watchlist in the US: tequila remains the key headache, and the company is also seeing weakness in Crown Royal Canadian whisky and Smirnoff vodka.

The bottom line: sales beat, guidance held steady, and the turnaround has an early proof point. If sentiment holds, the share reaction shows how even small improvements can re-rate a global staples name.

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