Diageo Stock Continues to Sink -- What Investors Need to Know

Diageo (NYSE: DEO), one of the world's biggest producers of alcoholic beverages, was once a stable blue chip consumer staples stock. But over the past 12 months, its stock has declined nearly 30%. Over the past five years, its stock has been cut in half. Let's see why Diageo's stock plummeted -- and whether it's worth buying as the bulls look the other way.

What happened to Diageo?

Diageo sells more than 200 brands of spirits, beers, and non-alcoholic drinks across nearly 180 countries. Its top brands include Johnnie Walker, Crown Royal, Casamigos, Smirnoff, Don Julio, and Guinness. Its biggest and most important market is the United States, which accounted for 29% of its top line in fiscal 2025 (which ended last June).

Image source: Getty Images.

The U.S. was traditionally Diageo's top market for premium spirits. But over the past few years, its spirits sales in the U.S. cooled as consumers either drank less or shifted to cheaper brands. The tariffs against Europe and Latin America exacerbated that pressure. To make matters worse, U.S. retailers ordered too much tequila in 2022 and 2023 (expecting its pandemic-driven demand to continue), while smaller brands fragmented the already saturated market.

Diageo's overseas sales have also been a mixed bag. It's still growing in Latin America, Africa, and Europe, but its sales in Asia (especially China) are declining. As a result, its top sales declined in fiscal 2023 and fiscal 2024 before finally stabilizing in fiscal 2025.

Data source: Diageo.

But in the first half of fiscal 2026, Diageo's organic net sales fell nearly 3%, as its 7% drop in North America and an 11% decline in Asia Pacific (mainly due to its declining sales of Baijiu and other Chinese wine spirits) offset its steady growth in Latin America, Africa, and Europe.

For the full year, it expects its organic net sales to decline 2%-3%. Analysts expect its total net sales to decrease 3% in fiscal 2026 and 1% in fiscal 2027.

Can Diageo turn its business around?

To cushion that blow, Diageo reduced its quarterly dividend by 80% to $0.20 per share (a 1% forward yield) this February and began pruning its workforce.

CEO Dave Lewis, who took the helm at the start of the year, plans to implement additional cost-cutting measures, divest some of its weaker assets, realign its orders with market demand, and rebalance its pricing to stabilize its business. However, analysts still expect its adjusted EPS to decline 1% in both fiscal 2026 and fiscal 2027.

Diageo's biggest problems are tough to overcome. Its premiumization strategy in the U.S., which had worked for years, could be impossible to restart as alcohol consumption rates decline. As it cuts its prices, it will need to compete more aggressively with other struggling alcoholic beverage companies, such as Constellation Brands (NYSE: STZ).

But if Diageo stabilizes its U.S. business, works through the tequila market's messy inventory issues, and expands in its higher-growth emerging markets, its sales and profits might rise again. If that happens, its stock might be a bargain at 12 times forward earnings. Constellation, which faces similar existential challenges, also trades at 12 times forward earnings.

Where will Diageo's stock be in a year?

Diageo isn't down for the count yet, but it won't resolve its biggest issues or raise its dividend again within the next few quarters. Therefore, I expect its stock to either stagnate or sink lower over the next 12 months and underperform other blue chip consumer staples stocks.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands and Diageo Plc. The Motley Fool has a disclosure policy.