Diageo, the company behind Smirnoff vodka and Johnnie Walker whisky, has said US tariffs could damage a nascent recovery in its sales and result in a $200m (£161m) hit to profits, with its tequila portfolio and Canadian whisky most affected.
The UK drinks company returned to sales growth in the latest half year, as strong performances for Guinness and tequila offset weakness in other spirits – but Donald Trump’s 25% tariffs on Canadian and Mexican imports could stop this recovery in its tracks, analysts said.
Diageo shares fell by a further 4% to the lowest since March 2020, after a 3.7% drop on Monday, on concerns about the impact of the tariffs on the US, its largest market. Canada and Mexico said they would retaliate. Donald Trump has paused the implementation by one month to allow for negotiation.
Debra Crew, the chief executive, said that the tariff situation was “very fluid”, but the company estimated they could lead to a $200m reduction in operating profit over the last four months of its financial year, with 85% related to tequila, which has to be made in Mexico.
Diageo, which also owns the Gordon’s gin brand, is also considering raising prices and running fewer promotions, as well as reallocating some investments.
Nik Jhangiani, Diageo’s new financial officer, said the company “could cover 40% [of the hit] before any pricing action”. Diageo intends to ship more products into the US before the tariffs kick in.
Crew said Diageo had planned for a number of potential scenarios regarding tariffs, but said the new duties announced over the weekend “could very well impact this building momentum” in sales.
Diageo reported net sales of $10.9bn in the six months to December, down by 0.6%, while organic sales returned to growth, of 1%. It made a profit before tax of $2.8bn, down from $3.3bn a year earlier.
While sales of spirits declined by 3%, beer revenues grew by 13%, led by Guinness. Sales of the non-alcoholic version Guinness 0.0 nearly doubled. The company has struggled to keep up with demand but Crew said “we will get beer out as quickly as we possibly can,” pointing to a new brewery in County Kildare, west of Dublin.
The company scrapped its target of 5%-7% annual sales growth, saying that the uncertainty in many of its key markets was affecting the pace of recovery.
The target was set by Crew’s predecessor, the late Ivan Menezes, in 2021 but analysts had said the goal appeared increasingly difficult for the company to reach.
Crew said US consumers remained cautious, under pressure from grocery price inflation at a 30-year high, credit card debt and still-high interest rates.
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The investment bank Jefferies has calculated that 46% of Diageo’s USrevenues are from goods imported from Mexico and Canada, including brands such as Crown Royal, Don Julio and Casamigos. Along with other European drinks makers such as Pernod Ricard, Campari and Remy Cointreau, the firm could also be hurt by potential higher tariffs of EU products into the US.
Charlie Huggins, of the Wealth Club investment service, said that with Crew “under mounting pressure to turn things around, the last thing she needed was more uncertainty. Trump’s tariffs cloud the outlook and are a major kick in the teeth for shareholders.”
Diageo shares have hovered near a seven-year low since it issued a shock profit warning in late 2023, after a slump in sales in Latin America and the Caribbean.
Veteran fund manager Terry Smith, the founder of Fundsmith, recently sold its stake in Diageo because of concerns that the rise in the use of weight-loss medications such as Wegovy and Ozempic could take its toll on the entire drinks sector.
Crew said the company was monitoring the situation but could see “no material impact” so far, beyond a broader trend over the past decade that has seen health-conscious consumers drink less. She added that people still want to drink premium spirits.
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