A Mix of Cyclical and Structural Demand Headwinds Hurt Diageo (DEO)

Artisan Partners, an investment management company, released its fourth-quarter 2025 investor letter for “Artisan Value Fund”.  A copy of the letter can be downloaded here. The Fund seeks to invest in undervalued companies with strong financial condition and attractive business economics. US equities ended a record year with robust fourth-quarter gains. AI remains the main theme of the market, and large-cap stocks led the rally in the fourth quarter. Against this backdrop, the portfolio outperformed the Russell 1000® Value Index in Q4 and returned 4.60% compared to 3.81% for the Index. In 2025, it returned 14.28% vs. 15.91% for the index. Over three, five, and ten years, the portfolio outperformed the index, reflecting its effective investment discipline. Please review the Fund’s top five holdings to gain insights into their key selections for 2025.

In its fourth-quarter 2025 investor letter, Artisan Value Fund highlighted stocks like Diageo plc (NYSE:DEO). Headquartered in London, the United Kingdom, Diageo plc (NYSE:DEO) is a leading alcoholic beverage company. On March 13, 2026, Diageo plc (NYSE:DEO) stock closed at $77.37 per share. One-month return of Diageo plc (NYSE:DEO) was -21.98%, and its shares lost 29.21% over the past 52 weeks. Diageo plc (NYSE:DEO) has a market capitalization of $43.2 billion.

Artisan Value Fund stated the following regarding Diageo plc (NYSE:DEO) in its fourth quarter 2025 investor letter:

“Turning to our review of the full year, the portfolio generated a solid absolute return, benefiting from broad-based strength across sectors. Gains were led by our technology, industrials and communication services holdings. On a relative basis, underperformance was attributable to select holdings in the financials and energy sectors. Our bottom three contributors in 2025 were Fiserv, PayPal Holdings and Diageo plc (NYSE:DEO). Diageo is the largest spirits company in the world by revenue, with over 200 brands to choose from. Diageo and other spirits makers are contending with a mix of cyclical and structural demand headwinds. Growth has normalized after a COVID-induced bounce, and consumers have been trading down to cheaper value alternatives, which is a headwind for Diageo’s premium brands. Additionally, changing consumer preferences, GLP-1 weight loss drugs and aging demographics are sapping demand. Tariff uncertainty further clouds Diageo’s profits growth outlook. In the near term, margin expansion will likely be constrained, but the company continues to generate meaningful free cash flow and return it to shareholders through dividends and share repurchases. Over the past five years, Diageo generated $15 billion in free cash flow and returned $17 billion to shareholders. Despite current growth challenges, Diageo remains a market leader, with strong brands and significant scale and distribution advantages. Shares sell for just 12X EV/EBIT (enterprise value to EBIT)—the cheapest since 2009—providing us, we believe, with a favorable risk/reward.”