Fitch Withdraws All Diageo Ratings
Fitch Ratings has affirmed Diageo plc’s Long-Term Issuer Default Rating (IDR) and senior unsecured debt rating at ‘A-‘. The outlook on the IDR accorded as negative.
Meanwhile, Fitch has subsequently withdrawn all ratings.
It said the negative outlook reflects weak operating performances and already high indebtedness at the financial year ending June 2025, with leverage no longer commensurate with the rating over the next two years, amid a weak macroeconomic environment and subdued consumer confidence.
“We estimate earnings before interest, tax, depreciation and amortisation (EBITDA) net leverage at 3.3x at FY26 versus 3.6x in FY25 with only moderate deleveraging below 3x by FY28”, Fitch said.
Ratings analysts explained that the affirmation reflects Fitch’s view of Diageo’s continuously strong business profile as the world’s largest international spirits producer with the ability to maintain leading market shares across regions and drive organic sales growth through channel and brand portfolio management and innovation.
Meanwhile, Fitch said it has withdrawn the ratings for commercial reasons and will no longer provide ratings or analytical coverage of the company.
“We expect limited organic growth in FY26 due to weak consumer sentiment in key markets such as US and China, which represent approximately 60% of the company’s sale, with only modest support from accelerating premiumisation trends.
“We assume flat to negative organic revenue and EBITDA growth in 2026 with a mild growth returning in FY27 before accelerating towards mid-single digits as consumer confidence gradually improves”.
Ratings analysts expect that persisting contraction of consumer spending in the US and Asia means Fitch-calculated net leverage will remain above 3.0x in FY26 and FY27, after softer FY25 results with leverage peaking at 3.6x.
This will exhaust rating headroom and limit the ability to absorb any additional market risks. Analysts forecast Diageo will deleverage below 3x by FY28 supported by EBITDA growth, improved working capital management and completion of the investment cycle, while maintaining disciplined capital allocation.
Fitch said the Negative Outlook considers growth stimulation and profitability protection measures, but also uncertainty arising from trade tariffs and sluggish operating conditions.
Diageo’s public commitment to its leverage target and disciplined approach to its balance sheet underpins the affirmation. This consistent financial policy was demonstrated by the suspension of share buybacks during the pandemic until net leverage returned to its targeted range of 2.5x-3.0x.
In addition, Fitch analysts expressed that they assume Diageo’s dividend cover of 1.5x in FY26 gradually returning towards its policy range of 1.8x-2.2x. We expect Diageo will continue to manage financial risk within its targets.
Fitch projects a flat EBITDA margin in FY26 at about 30% as receding inflationary pressures, cost savings and internal efficiencies will likely be offset by weak consumer confidence in key markets, smaller price increases and the impact from US tariffs, estimated at USD100 million.
Profitability is expected to gradually recover towards 31% by 2028, driven by productivity measures and improving macroeconomic conditions.
“We do not incorporate changes to the USMCA trade deal (subject to the July 2026 review), treating a removal of tariff exemptions as event risk, which could have a USD600 million potential impact”.
Ratings analysts said project free cash flow (FCF) margins to recover to 2.3% in 2026 from 0.6% in FY25 driven by working capital efficiencies and capex normalisation, with the FCF margin gradually rising towards 3%-4% by FY27.
Fitch noted that Diageo benefits from longer payment terms than the industry average, which supports its working capital. Analysts think a reduction in these terms could significantly affect working capital, requiring replacement with debt or cash, and resulting in an increase in net debt.
Diageo is firmly positioned to withstand margin pressures because of its strong pricing power and portfolio of strong premium brands, which allow it to cover cost increases with changes to its product mix.
Fitch also added that Diageo will continue increasing its exposure to fast-growing categories like ready-to-drink and non-alcoholic beverages, adapting to evolving drinking habits through innovation and potentially bolt-on M&As from FY28, while divesting weaker low- and medium-priced brands.
The sale of its 65% stake in East African Breweries in December 2025 aligns with this strategy. “We view the strategy as neutral to Diageo’s core brand, product composition and capital structure but beneficial for sales growth acceleration.
“The group has limited flexibility for bigger M&A in FY26-27, unless it is offset by divestments or lower shareholder distributions,” Fitch added. Europe Eyes ‘Capital Weapon’ As Trump Doubles Down On Greenland
