It was a key time for Diageo (LSE:DGE) and Rolls-Royce (LSE:RR) shareholders last week. Both FTSE 100 companies reported earnings, and the market reacted as it has done for several years now. Diageo dropped while Rolls-Royce jumped. 

A £10k investment made a week ago, with five grand in each, would now be worth £9,440. That’s because while the engine maker rose strongly after earnings, it has pulled back since, leaving it up just 2%. And struggling spirits giant Diageo is down 13.2% in a week.

Zooming further out, it has been chalk and cheese, with Rolls stock up 1,122% in five years compared to a 43.8% crash for Diageo.

Rolls is firing on all cylinders

It was also chalk and cheese as far as the reports were concerned. Rolls-Royce beat City analysts’ estimates, reporting £3.5bn in underlying operating profit and £3.3bn in free cash flow.

Planes were in the sky for longer, while the Defence and Power Systems units are benefiting from rising military spending and the AI data centre buildout. 

President Trump’s attack on Iran is likely to keep sentiment strong for aerospace and defence stocks. But if things escalates, airspace across the Middle East could be closed for some time. Not ideal conditions for Roll-Royce’s civil aerospace cash cow, never mind the more serious humanitarian impact.

For 2026, management guided for £4bn-£4.2bn in underlying operating profit and £3.6bn-£3.8bn in free cash flow. The dividend was hiked by more than 50%, alongside a mammoth £7bn-£9bn share buyback to run across 2026-2028.

CEO Tufan Erginbilgic said: “With our new capabilities and mindset, we have navigated challenges from supply chain to tariffs, and delivered a strong performance in 2025, all while we built the foundations for significant growth for years to come“.

Diageo in the doldrums again

By contrast, Diageo reported a a 2.8% dip in organic net sales, as American drinkers downgraded to cheaper brands, sending sales of its premium tequila brands (Don Julio, Casamigos, etc) down 23%.

Meanwhile, Chinese white spirits are also struggling, with sales of Baijiu dropping off a cliff after Beijing banned it and other alcohol at official government banquets, meetings, and receptions. 

North America and China are two key markets, so this weakness wasn’t entirely offset by solid growth in Europe, Latin America, and Africa. Things remain tricky.

Still, Guinness continues to astonish, akin to a striker still banging in the goals for a struggling football team. New CEO Dave Lewis is frustrated that soaring demand for the black stuff has gone unmet in the UK. But he also sees this as an opportunity moving forward.

Guinness sales rose 15% in North America in H1 FY26. But unfortunately this wasn’t enough to prevent a 50% cut to the dividend.

Lewis commented: “Only several weeks in I can already see significant opportunities for Diageo to act more decisively to enhance its competitiveness and broaden the portfolio offering leading to higher growth”. 

Valuations

After their divergent share price performances, Rolls stock is trading at a nosebleed 39 times forward earnings, compared to just 13.5 times for Diageo. Investors looking at Rolls-Royce should be mindful of the high valuation.

Meanwhile, Diageo has strong turnaround potential, with new management sussing things out. But it will take time, making it only suitable for patient investors to consider today.