The Diageo (LSE:DGE) share price can’t seem to shake off a massive hangover, having fallen more than 20% in the last year and almost 50% in three years.

The troubles began with a profit warning in November 2023, following a decline in sales in Latin America and the Caribbean. Cash-strapped local consumers switched to cheaper national brands, and stock woes worsened the situation.

Big FTSE 100 drop

Many, including me, thought it was a local matter. A few weeks later, I bought the shares at a discounted price, but more trouble awaited me.

Diageo boasts some of the world’s largest spirits brands, including: Guinness, Baileys, Smirnoff and Tanqueray AND Johnnie Walkerbut even these iconic names are not enough to save it from global crisis.

Positioning itself as a premium beverage company worked wonders when pockets were full, but cost-of-living restraint showed its limits. The death of CEO Ivan Menezes in June 2023 after a tiny illness left successor Debra Crew facing a falling share price, failing sales, the threat of U.S. tariffs and a number of other challenges. She left in July.

Latest results and prospects

The latest results, released on November 6, showed Diageo lowered its full-year sales and earnings forecasts on weaker Chinese spirits and a weaker U.S. consumer market.

Interim chief executive Nik Jhangiani said first-quarter net sales were flat, with gains in Europe, Latin America and Africa offset by weakness in China and the United States. Management is focused on cutting costs, refining strategy and embedding “a more rigorous, results-oriented culture throughout the company”.

The first really positive news came with the former’s appointment Tesco chief Dave Lewis announced on Monday (November 10). Known as ‘Drastic Dave’ after his appointment in 2014 when Tesco was in crisis, he did a brilliant job. Today it is the powerhouse of the largest companies, ensuring growth in share prices and dividends. Equally drastic action is required today at Diageo.

It’s quite a challenge. The decline in the cost of living continues, younger consumers appear to be drinking less, and it turns out that weight loss drugs can also suppress alcohol cravings. Non-alcoholic alternatives may fill some gaps, but I just don’t see them replacing mainstream brands. Lewis starts work in January.

Potential income and development

Brokers are sanguine. Analyst consensus forecasts suggest the median Diageo share price next year will be 2,226p. If this happens, it would represent an boost of about 20% from current levels. Add a forecast dividend yield of 4.25% and this could turn a £10,000 investment into around £12,425. I would be thrilled with this, although it won’t erase the 30% decline I’ve experienced so far.

Investors can consider buying for the long term and with the knowledge that even the most competent leadership cannot guarantee results.

The combination of iconic brands, disciplined management and attractive total return make this stock worth watching. I might even average out and up the ante in hopes that Lewis can work his drastic magic again.