In January, I backed Diageo (LSE:DGE) shares to rise in 2026 after four consecutive down years. I thought the necessary ingredients were present for a multi-year turnaround.

That pick had been doing well, but the FTSE 100 stock took a big hit Wednesday (25 February), slumping 14%. The culprit was the spirits giant’s interim results for the six months to the end of December.

Let’s dig in to decide whether I should buy the (latest) dip.

Another mixed update

This was new CEO Sir Dave Lewis’s first report since taking over the beleaguered drinks company in January. There were four things that stuck out to me in the report.

The first was that trading conditions are still tough in two key markets — North America and China. Ongoing pressure on disposable income in the US is impacting spirits sales, offsetting growth in Europe, Latin America and Africa.

Underlying net sales declined 2.8% to just over $10bn, with operating profit falling by the same amount to $3.26bn. As a result of this mixed performance, the Guinness producer said full-year organic net sales are expected to dip 2%-3% (more than previously anticipated).

Next, the dividend was cut, which was a hardly a surprise to me. It slashed the payout in half, from 40.5 US cents per share to 20 cents. This was to “create more financial flexibility” and strengthen the balance sheet. The cut will see the dividend yield move down to around 2.5%.

Third, and perhaps the most important, it looks like Diageo will water down its premiumisation strategy. Lewis is considering “price repositioning” and says Diageo is “significantly under-represented” in the mass market.

Finally, Chinese white spirits have been dragging down performance again. This category’s mentioned six separate times in the report, suggesting to me that Chinese white spirits are vulnerable to being sold.

The ingredients are still there

In a sense, nothing much has changed. Lewis has only been in the corner office for a few weeks and it was always going to take time to turn around a global tanker like Diageo.

But in my mind, the ingredients for a turnaround still exist. What do I mean by that?

Well, take a company like Aston Martin, where sales are declining, losses are piling up, and there’s massive debt. In this situation, sadly, I see no ingredients for a sustained turnaround. With Diageo though, it’s still selling large volumes of alcohol profitably around the world.

Moreover, some portfolio brands are still growing worldwide — notably Guinness, whose sales rose 10.9% in the first half, and Johnnie Walker.

Crucially, there are various assets that can be sold beyond Chinese white spirits. These include non-core brands, its 34% stake in Moët Hennessy, and the Royal Challengers Bengaluru cricket team.

Of course, Diageo will seek to get a fair price for these, and that might take time given the backdrop, but at least there are options.

My move

Leaning into the mass market more through brands such as Smirnoff Ice and Captain Morgan could boost sales. Here, the CEO sees “significant opportunities” for Diageo to become more competitive and drive higher growth.

All things considered, I still see this as a top turnaround candidate. But I need to see evidence that Diageo can start growing again before I invest. I’ll wait before making my move.