Diageo, the company behind Johnnie Walker, Smirnoff, Captain Morgan, and Guinness, just took a meat cleaver to its dividend — cutting it in half from 40.5 cents to 20 cents per share. Shares cratered nearly 10% on Wednesday morning in the stock’s worst single-day drop since November 2023. And the new CEO is just getting started.
Dave Lewis, nicknamed “Drastic Dave” for his cost-cutting track record at Tesco and Unilever, delivered his first earnings presentation as Diageo’s boss and chose honesty over spin. The company slashed its 2026 organic sales forecast, now expecting a decline of 2% to 3%. Previous growth engine tequila — yes, the same spirit that was supposed to be the future — has collapsed alongside broader U.S. and Chinese demand. As one analyst put it: “There is no point trying to dress up the six-month figures. These are awful results, and the repair job is massive.”
The damage goes beyond one bad quarter. Diageo’s debt has doubled since 2017 and now stands at 3.4 times adjusted operating profit, well above the company’s own target. Lewis is already selling assets and cutting costs to dig out. He plans to present a full turnaround strategy in the third quarter, but investors did not want to wait — they sold first and will ask questions later.
What is killing the spirits business? Three forces converging at once. First, consumer wallets are under pressure globally. Inflation has eroded discretionary spending, and premium spirits are exactly the kind of purchase people cut when money is tight. Second, weight loss drugs like Ozempic and Mounjaro are quietly reducing the desire for alcohol in users — a trend Lewis acknowledged is small for now but growing. Third, legal cannabis continues to eat into alcohol’s share of the “relaxation market.”
The ripple effects hit the entire sector. Pernod Ricard, Rémy Cointreau, and Campari all dropped more than 6% in sympathy. This is not a Diageo problem — it is an industry reckoning. The post-pandemic spirits boom is officially over, and companies that loaded up on debt to ride it are now scrambling.
Lewis hinted that Diageo may actually cut prices on some brands and push into cheaper, mass-market spirits — a dramatic pivot for a company that spent decades cultivating a premium image. He also admitted customer service had been “really very poor” in some cases, which is the kind of candor that either means the new boss is about to fix things or the problems are worse than anyone thought.
For investors watching from the sidelines, Diageo at these levels is interesting but dangerous. The yield is now significant after the cut, the brand portfolio is arguably the best in the world, and Lewis has a genuine turnaround track record. But catching a falling knife in a sector facing structural headwinds from GLP-1 drugs and shifting consumer habits is not for the faint-hearted. Sometimes the smartest trade is watching the wreck from the shoulder.