The Diageo (LSE:DGE) share price has had many false starts in recent years. Strong momentum would build, leading shareholders to believe a recovery was in the works. Then something would come along to derail the turnaround train — a profit warning, another spike in inflation, tariffs, you name it.

In the past month, Diageo has been teasing another comeback. It has risen 12%, including 5.3% today (6 May).

Let’s take a look at what’s behind the latest upwards momentum.

All hail the King

There have been two positive developments in the past week. First, on 30 April, President Trump announced the removal of tariffs and restrictions on Scotch whisky. This followed a four-day state visit of King Charles to the US.

“The King and Queen got me to do something nobody else was able to do, without hardly even asking!” That’s what Trump wrote on social media.

As the world’s largest producer of Scotch, with brands like Johnnie Walker, Lagavulin and Talisker, the removal of the 10% tariff is obviously welcome news for Diageo. 

Second, we had the FTSE 100 company’s fiscal Q3 report today, which showed a 0.3% rise in organic net sales. Admittedly, that’s hardly earth-shattering growth, but the market was excepting a 2.3% fall. So it was a surprise beat.

Net sales increased 2.3% to $4.5bn, but it was a mixed picture underearth. Strong organic growth in Europe (+8.8%), Africa (+17.1%), and Latin America and the Caribbean (16.2%) helped offset a 9.4% fall in sales in key market North America.

CEO Sir Dave Lewis said: “North America remains our biggest challenge, where market conditions are soft and our offer needs to be more competitive. Actions are already underway to address this“.

Diageo reiterated its full-year guidance for a 2-3% decline in organic net sales and $3bn in free cash flow.

The crown jewel

The ongoing US weakness is a worry, especially as Q3 included distributors stocking up ahead of the FIFA World Cup (the tournament is being hosted across North America). US Spirits organic net sales declined by 15.4%.

Tequila is turning into a nightmare. Diageo has invested a lot of money and time into building up its tequila portfolio, which includes Casamigos and Don Julio. But sales here fell by double digits, driven by “tough prior year comparatives, competitive pressure and category softness“.

On the other hand, Guinness continues its remarkable ascent. It drove strong sales in the UK and Ireland, did well in the US, and Asia Pacific (double-digit sales growth). This incredible brand really is the crown jewel.

Meanwhile, in a blast of nostalgia, Smirnoff Ice is on fire. It grew strongly in North America and Brazil.

The surging RTD (ready-to-drink) category is something Diageo is looking to lean into. Canned cocktails are perfect to drink at picnics and music festivals, and tap into demand for smaller and affordable sizes among people on GLP-1 weight-loss medications like Mounjaro.

Can the stock chug higher?

Inflation is clearly an ongoing challenge, but there are some positive signs in this trading update. RTDs and introducing Guinness to more markets seem like open goals.

With Diageo still down 57% in three years, and offering a 3.2% dividend yield, I’m going to buy some shares in May. I think the stock can head higher from here.