Diageo faces $150m annual tariff impact
Johnnie Walker owner Diageo expects US tariffs to hit its business by approximately US$150 million each year.
London-headquartered Diageo, which produces Captain Morgan rum and Smirnoff vodka, released a trading update this morning (19 May) for its third quarter (three months ending 31 March 2025).
The company noted an approximate US$150m unmitigated impact on its business from the 10% tariff placed by US president Donald Trump on both UK and European imports to the States.
Diageo said in the trading update: “We expect that given the actions that we have in place already, before any pricing, we will be able to mitigate around half of this impact on operating profit on an ongoing basis.
“Looking ahead, we will continue to work on measures to mitigate this impact further.”
In a statement in February, the company said it would implement a number of actions to “mitigate the impact and disruption” of tariffs including pricing and promotion management, inventory management, supply chain optimisation and reallocation of investments.
Diageo has also launched the first phase of its new Accelerate programme, which it expects to deliver US$3 billion in cash flow per year starting from fiscal 2026.
The programme sets cash delivery targets and shifts the company into a ‘more agile’ global operating model, backed by digital and data capabilities.
The scheme is expected to save approximately US$500m in costs over the next three years, which will be put towards reinvestment in future growth and ‘improved operating leverage’.
More details of the Accelerate programme will be revealed on 5 August when the group publishes its fiscal 2025 results.
Q3 results
For the first three months of this year, Diageo reported an unaudited organic sales growth of 5.9% to US$4.37bn compared to the same period in 2024.
Diageo said the increase in third-quarter (Q3) sales was due to ‘significant phasing benefits’, which are estimated to have contributed around 4% of organic net sales growth. Two thirds of this growth came from North America and most of the remainder came from the Latin America and Caribbean (LAC) region, the group noted.
In Q3, sales rose by 6.2% in North America, by 28.5% in LAC and by 10.1% in Africa. Asia Pacific posted a 1.6% increase while Europe was the only region to decline, down by 0.4%.
The growth in North America was led by strong shipment gains in US spirits, which posted a 7% gain.
US spirits were ahead of depletions growth by approximately 5%, led by a ‘pull-forward of imports to distributors in anticipation of tariffs’ (which Diageo expects will reverse in the fourth quarter), and Tequila restocking due to ‘continued strong consumer sales performance’.
Sales in Europe were hit by ‘softness in spirits across key markets’, but Guinness saw strong momentum. The group noted growth for both its Tequila brands, Don Julio and Casamigos.
‘Significant inventory destocking’ boosted LAC sales in Q3, with double-digit gains in Brazil.
In Africa, sales were lifted by double-digit growth in Tanzania, Uganda and Ghana.
In terms of sales for the nine months to 31 March 2025, the group reported a 0.6% uptick to US$15.27bn.
Over the nine months, North America sales rose by 2%, LAC sales increased by 10.6%, Africa sales grew by 9.3% and Europe was up by 0.6%.
On the other hand, Asia Pacific sales dipped by 1.4%.
The Q3 results followed a 1% sales increase for Diageo in the six months to December 2024.
Full-year outlook
Diageo expects to deliver a ‘sequential improvement’ in organic net sales growth for the second half of fiscal 2025, compared to the previous six months.
The group anticipates a slight decline in organic operating profit in the second half of fiscal 2025, broadly in line with the decrease seen in the first six months of its financial year.
Debra Crew, Diageo chief executive, said: “We continue to believe in the attractive long-term fundamentals of our industry and in our ability to outperform the market.
“We view the near-term industry pressure as largely macro-economic driven, with continued uncertainty impacting both the timing and pace of recovery.”
Earlier this month, a class action lawsuit was filed against Diageo North America alleging the company had falsely marketed its Tequila brands as ‘100% agave’.
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