Tequila sales in the U.S. are collapsing. Diageo is cutting its dividend in half.

By Steve Goldstein

Global drinks company Diageo cites American consumer response to affordability issue

Sales of the Diageo tequila brand Don Julio, served here during an Academy Awards charity watch party in West Hollywood, Calif., last March, have been shrinking.

Diageo on Wednesday said it was cutting its dividend in half as it reduced its sales outlook, citing American consumers' reluctance to spend due to affordability concerns.

Diageo, whose brands include Guinness, Johnnie Walker and Captain Morgan, said it now expects organic sales growth for the fiscal year to fall between 2% and 3% - it previously had foresees sales that were flat to slightly down - leading to operating-profit growth, on an organic basis, between flat and up by a percentage in the low single digits. It previously targeted low- to mid-single-digit organic profit growth.

That came after a fiscal-year first half in which its operating profit before exceptional items fell 2.8% to $3.26 billion, with organic sales falling 2.8%.

The performance among its U.S. spirits business "reflected pressure on disposable income and competitive pressure from more affordable alternatives addressing a more stretched consumer wallet," CEO Dave Lewis said.

On a call with analysts, Lewis stressed that affordability rather than take-up of GLP-1 weight-loss medications or changing cultural preferences has been the big issue.

"Whilst I do not diminish at all factors like GLP-1 or the attitudes towards the category, at this moment in time they show a very small impact on spirits consumption. But there is a challenge, which is broader economically," he said, according to transcript provided by FactSet.

Spirits sales, on an organic basis, tumbled 9.3% in the U.S., Diageo said, blaming on competitive pressure as well as category softness faced by tequila in particular, where net sales fell 23.1%.

The company also struggled selling the Chinese liquor baiju, with sales in that country collapsing by 42.3%, which offset what the company said was a strong performance in Europe, Latin America and Caribbean and Africa.

The big news was the dividend, which will be 20 cents, down from last year's 40.5 cents and the consensus estimate that called for a dividend of 43.1 cents.

Diageo shares (UK:DGE) tumbled 13% in afternoon London trade, while U.S.-listed shares (DEO) were down nearly 16% early in the session.

Jefferies analyst Edward Mundy said a strategic reset under Lewis, who started in January, was never going to come this early in his tenure.

"Main debate today will be whether there is a further profit reset coming for [fiscal 2027] when further details around the refreshed strategy are provided," the analyst said.

-Steve Goldstein

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02-25-26 1038ET