Writers here at The Motley Fool have long been speculating about when we might see a recovery in Diageo (LSE:DGE). The shares have fallen every year since 2021, including a year-to-date decline of 27%.
In Samuel Beckett’s play Waiting for Godot, two men wait endlessly for someone named Godot to turn up and provide them with salvation. That’s exactly how Diageo shareholders must have felt over the past four years. They’ve waited patiently for a turnaround that has just not materialised.
Yet, whisper it quietly, there are signs that this spirits-laden supertanker might be about to turn. Since Thursday (6 November), the FTSE 100 stock is up nearly 10%, turning a £10,000 investment made at lows last week into almost £11,000.
Might the long-awaited recovery finally be imminent?
Enter the possible saviour
One thing that’s essential for any successful turnround is a strong permanent CEO with a credible plan. That’s what has been missing.
However, this might now be in place after it was announced yesterday that Sir Dave Lewis will take over the reins at the start of 2026. Nicknamed ‘Drastic Dave’, he’s known for his no-nonsense, cost-cutting turnaround/rescue of Tesco between 2014 and 2020.
In my opinion, this is a fantastic appointment. Because under the previous CEO Debra Crew, who was already a senior Diageo executive prior to her appointment, I got the feeling that management didn’t want to rock the boat too much. Even when leaks were appearing.
For example, Diageo owns 200+ brands. Some of these are truly world-class assets that I doubt shareholders would want the firm to sell, particularly Johnnie Walker, Tanqueray, and Guinness. It also owns fast-growing Don Julio tequila.
Yet despite the wider portfolio appearing bloated, there has only been tinkering around the edges so far. Perhaps this is understandable, given that a weak industry backdrop isn’t exactly fertile ground for mergers and acquisitions.
Also, lots of investment has gone into acquiring and marketing this portfolio of brands. However, I strongly suspect that Lewis (an outsider) will be far less sentimental.
Turnaround potential
Which brands could be on the chopping block? Take your pick as Diageo has 13 separate $1bn+ brands. It also has exposure to Chinese white spirits, as well as champagnes and cognac through a 34% stake in Moët Hennessy.
Newer brands appear vulnerable. For example, my colleague Edward Sheldon recently called Don Papa rum “one of the worst rums I’ve ever tasted“. Acquired in January 2023 for €260m, and potentially another €177.5m subject to performance, this drink has attracted very mixed reviews.
Elsewhere, net sales of Casamigos declined 18% in FY25. This premium tequila brand was acquired for up to $1bn in 2017.
A dividend reduction might also be on the cards (something previous management probably shied away from). Disposals and a dividend cut could free up cash to improve the balance sheet, which has started to worry investors.
Of course, any improvement in financial performance will take time. The new CEO can’t make challenges like weak consumer spending and tariffs magically disappear. These remain ongoing risks to sales.
However, I’m now more bullish on Diageo’s turnaround potential. For patient investors, I reckon this cheap FTSE 100 stock is a buying opportunity worth exploring further.
‘Drastic Dave’ might be the corporate Godot that shareholders have been waiting for.
