Multiple Headwinds Affected Diageo plc (DEO) in Q3

Artisan Partners, an investment management company, released its “Artisan Value Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. The equity market rally persisted in the third quarter as investors ignored tariffs, buoyed by strong corporate earnings, rising AI investment, and prospects of economic support from US fiscal policy and lower interest rates. Against this backdrop, the fund’s Investor Class ARTLX, Advisor Class APDLX, and Institutional Class APHLX returned 0.83%, 0.91%, and 0.90%, respectively, in the third quarter compared to a 5.33% return for the Russell 1000 Value Index. In addition, you can check the top 5 holdings of the fund to know its best picks in 2025.

In its third-quarter 2025 investor letter, Artisan Value Fund highlighted stocks such as Diageo plc (NYSE:DEO). Diageo plc (NYSE:DEO) engages in the production and distribution of alcoholic beverages. The one-month return of Diageo plc (NYSE:DEO) was -6.53%, and its shares lost 31.87% of their value over the last 52 weeks. On December 26, 2025, Diageo plc (NYSE:DEO) stock closed at $86.32 per share, with a market capitalization of $47.74 billion.

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

"In Q3, the portfolio’s stock selection was broadly negative across sectors, reflective of the broader performance headwinds discussed earlier as our investment style was firmly out of step with the market. However, our biggest source of underperformance was the consumer staples sector as we had a number of laggards, including Kerry Group, Philip Morris International 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 13X EV/EBIT (enterprise value to EBIT)—the cheapest since 2010—providing us, we believe, with a favorable risk/reward."

Diageo plc (NYSE:DEO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 34 hedge fund portfolios held Diageo plc (NYSE:DEO) at the end of the third quarter, compared to 35 in the previous quarter. While we acknowledge the potential of Diageo plc (NYSE:DEO) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Diageo plc (NYSE:DEO) and shared the list of best global dividend stocks to invest in. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.