Key Morningstar Metrics for Diageo

Diageo DGE’s organic net sales were flat in the first quarter of fiscal 2026. Volume increased 2.9% year over year; however, this was fully offset by a 2.8% price/mix decline driven by weak performance in China. Shares fell around 3% at the market open on Nov. 6.

Why it matters: Similar to its peers, stronger-than-expected headwinds in China and the United States outweighed Diageo’s improving performance in Europe, Latin America and the Caribbean, and Africa. India remains a bright spot; we are impressed with Diageo achieving double-digit growth in the region despite tax increases in Maharashtra.

Diageo updated its fiscal 2026 guidance, now expecting a slight decline to flat organic revenue against the prior year and low-single-digit to mid-single-digit operating profit growth, which we view as appropriate. Previous guidance included organic net sales growth at a level similar to fiscal 2025 and mid-single-digit organic operating profit growth.We expect profitability and cash generation to be supported by Diageo’s Accelerate program, with the firm remaining on track to reach its $625 million cost-saving target over the next three years.

The bottom line: We lower our fair value estimates for wide-moat Diageo to GBX 2,260/$118 from GBX 2,440/$130. This decrease stems from lowering our fiscal 2026 revenue and profitability forecasts due to a slower-than-expected recovery in North America and China. Despite the cut, shares are currently around 20% undervalued.

We see continued investor concern over a recovery in demand, particularly in North America, which makes up nearly half of Diageo’s EBIT. However, we view headwinds as cyclical rather than structural. With this, our medium-term forecasts are unchanged.We hold our view that Diageo’s broad portfolio and geographic diversification will enable the firm to withstand industry shifts and cycles. Diageo’s lower-value asset disposals should help position the firm to benefit from the long-term trend of premiumization.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

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