Is the Diageo share price about to soar?

As a shareholder in Diageo (LSE: DGE) I have been continually disappointed. I bought into the Guinness brewer after its price fell to a point I felt was attractive. But the business has performed unevenly and the Diageo share price has performed woefully.

This year, while the wider FTSE 100 index has grown 10%, Diageo is up by a more modest 3%. That does not reflect well on the success so far of the current chief executive, brought in at the start of the year for his supposed turnaround credentials.

Over five years, the Diageo share price has more than halved.

Tomorrow (6 August) though, could be a big day for the share price…

It’s time to hear the strategy

That is because the  interim results will be revealed and, alongside them, the chief executive will outline his strategy.

Now in his eighth month on the job, he has had time to look under the bonnet of the company and decide what he thinks needs to be done to get it humming again.

Based on his track record at Tesco, I see him as someone focused on cutting costs not investing heavily in building premium brands. His brutal (and in my view unnecessary) halving of the Diageo dividend earlier this year shows he is willing to administer tough medicine.

We will not know the contents of that review until tomorrow,. Given how long it has taken to prepare, I think it needs to be fairly dramatic to avoid City disappointment.

I reckon Diageo’s sideways drift in recent years means that many investors are now keen on having a strong plan of action.

So I expect the share price could move up strongly in coming days more or less regardless of how good the plan actually is. There may simply need to be the sense that there is a significant, urgent action plan.

Here’s my concern

I am not a trader though, jumping in and almost immediately out of shares expecting short-term jumps from company news. I am a long-term investor.

From a long-term perspective, I think it will take some time for the dust to settle and see what the new strategy might bring.

The dividend cut came suddenly, within a couple of years of the company’s decades-long streak of annual dividend growth. It already made me consider selling my Diageo shares. However, the weak price meant I would have to take a loss.

I decided to hang on but I will be looking closely to see what the strategy is.

My concern is that it will focus on managing costs and putting more marketing efforts into the mass market. For a premium brand owner like Diageo, that could boost the bottom line in the short term. But it risks hurting the business’s long-term value.

On the other hand, the new strategy might potentially involve ways to play to the company’s existing strengths, like its large portfolio of highly successful premium brands and global distribution footprint.

So I will be paying attention to tomorrow’s announcement. For now, I have no plans either to sell my shares nor to buy any more.

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Christopher Ruane owns shares in Diageo.