Diageo needs plausible and sustainable profit reset to rebuild confidence, says Deutsche Bank

Diageo PLC (LSE:DGE) faces growing pressure to reset investor expectations when it reports annual results next month, with Deutsche Bank arguing the drinks group needs a more realistic profit base before it can return to consistent growth.

The bank maintained its 'buy' rating but cut its target price to 1,700p from 1,759p ahead of the company's results and strategy update on 6 August.

For the fourth quarter, Deutsche Bank forecasts organic revenue will fall 2.7%, compared with Bloomberg consensus expectations for a 1.8% decline, though it expects second-half organic operating profit to rise 4.5%, ahead of consensus of 3.6%, leaving full-year operating profit growth of 0.1%.

The bank expects adjusted net profit of $3.6 billion for the 2026 financial year.

The main focus, however, is likely to be the updated strategy from chief executive Dave Lewis.

Analyst Mitch Collett said he expects a "substantial reset" to profitability targets, arguing this "is needed to allow Diageo to compete and be able to offer the type of consistent, profitable growth that investors will value highly".

That view contrasts sharply with current market expectations for the 2027 financial year, where consensus forecasts assume organic revenue growth of 1.9% and operating profit growth of 1.6%. Deutsche Bank's estimates are for revenue to decline 0.3% and operating profit to shrink 9.3% next year.

Despite his more cautious forecasts, Collett believes management is likely to outline a medium-term ambition for organic operating profit growth of 2-6%, arguing that a lower initial base is a "plausible medium-term aspiration" and would allow sustainable growth to be delivered over time.