Diageo 2027 Q1 Earnings Call

Thanks, Lucy. Good morning, everyone, and welcome to Diageo's Fiscal 2027 Q1 Trading Statement Call. I am Sonya Ghobrial, Head of Investor Relations, and I am joined this morning by Sir Dave Lewis, Chief Executive Officer, and Nik Jhangiani, Chief Financial Officer. Just a quick reminder for those on the call that in the discussions today, the company may make certain forward-looking statements, including those that refer to our estimates, plans, and expectations. Please refer to this morning's release for our detail, including factors that could lead to actual results to materially differ from those expressed in or implied by any such forward-looking statements. Hopefully, you have all seen this morning's press release, which can be found on our website in the Investor section. For those listening who would like to ask a question, please use the dial-in details included in the release.

Also, if I could ask if you could limit to one or two questions per analyst, that way we can hopefully get around everyone, particularly when it is a busy day ahead of our AGM. But first, let me hand over to Dave for some brief opening remarks.

Sonya, thank you, and good morning, everyone, and thank you for joining us. Sonya says a busy day for Diageo, so let me get straight to it. When we spoke in August, I think we were trying to be very clear about the opportunity that we see for Diageo, but we were also equally clear that there was a lot of work ahead of us, and we had much to do to improve our performance. Quarter one was in line with our expectations, and given the amount of change that we have been executing in the organization in the last wee while, the results represent, I think, a small step in the right direction. North America remains our biggest challenge. The market remains soft, and our focus remains on making our offering more compelling and competitive. There are clear actions underway as part of that turnaround plan.

We shared those with you at the Capital Markets Day in August, and the focus of John, the team, and everyone is firmly on execution. I'd also like to highlight the fact that nothing has changed in our view about the confidence we have in the long-term value creation of the Diageo business. We reiterated our guidance for 2027, and we remain completely focused on a consistent creating value for shareholders. But with that, let me hand to Nick, and he'll walk you through Q1.

Nick. Great. Thanks, Dave, and good morning, everyone.

I'll take you through our performance in the first quarter before Dave and I take your questions. Let me start with a few of the key highlights. In the quarter, organic net sales, excluding EABL, grew 0.6% with positive price/mix of 0.7%. If you included EABL, organic net sales increased 1.4%. In LAC and APAC, we delivered mid-single-digit growth, while in India and EMEA, we grew low single digits. In North America, organic net sales declined mid-single digit, reflecting continued market softness, as Dave just referenced. By category, we highlighted good momentum in whiskey, Guinness, and Smirnoff RTDs. Our guidance for fiscal 2027 remains unchanged from what we shared at the Capital Markets Day.

Now, if you look at reported net sales, those were up 1.2% to $4.9 billion, with positive organic growth partly offset by the negative impact of foreign exchange and disposals. Organic net sales grew 0.6%, excluding the impact of EABL, with slightly negative organic volume growth of 0.1% and positive price/mix of 0.7%, as I referenced earlier. Getting into some more detail on net sales across the regions. In North America, organic net sales declined 3.6%, reflecting continued market softness. As Dave said, North America remains our biggest challenge, but clear actions are underway. We remain focused on making our offer more compelling, more competitive, and executing the turnaround plan we shared in August. In the U.S., net sales declined 3.7%, with a small phasing benefit and distributor stock levels in line with Q1 last year.

In spirits, weakness in Don Julio, Casamigos, and Crown Royal was partly offset by growth mainly in Johnnie Walker. Guinness and Smirnoff Ice both delivered double-digit growth. In EMEA, we grew 2.4%, led by Türkiye, Africa, and the Middle East, more than offsetting weakness in Italy and France. Growth was volume led, with negative price/mix reflecting targeted price repositioning. Spirits and RTDs were the key drivers of growth. In beer, double-digit growth in Guinness in Africa and DACH offset a low single-digit decline in Great Britain and Ireland. Asia-Pac grew 4.1%, with double-digit growth in global travel and mid-single-digit growth in Southeast Asia and North Asia. Greater China declined mid-single digits due to weakness in Taiwan, while in mainland China, both Chinese white spirits and international premium spirits were relatively flat. Guinness delivered strong double-digit growth, with particularly strong performance in Southeast Asia and in Australia.

LAC delivered 4.8% organic net sales growth, with a double-digit growth across CCAV, South LAC, and Colombia, partly offset by weakness in Mexico, while Brazil was broadly flat. Scotch performed well with high single-digit growth across multiple markets, and RTDs grew double digit, led by Smirnoff Ice. In India, we grew 3.4% with Prestige & Above the bulk of our business up 7.1% due to double-digit growth in both vodka and Scotch. This was partly offset by the Popular segment, which continued to be impacted by regulatory policy and excise changes in the key states of Maharashtra and Karnataka. Finally, in corporate, EABL delivered double-digit growth across all three markets. Turning now to the outlook, as I mentioned earlier, our FY 2027 guidance remains unchanged. We continue to expect broadly flat organic net sales growth and low to mid-single-digit organic operating profit growth.

We still expect free cash flow of around $2 billion after exceptional costs and excluding EABL. Finally, we expect to end FY 2027 at the midpoint of our target leverage range, including the benefit from the completion of the EABL transaction and the sale of RCB by USL. With that, let me hand back to the operator, and Dave and I will be happy to take your questions.