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Johnnie Walker owner Diageo says Trump tariffs could hit sales recovery Johnnie Walker owner Diageo says Trump tariffs could hit profits by $200m
(about 2 hours later)
UK drinks company’s shares fall amid fears it could be affected by future US levies on Mexico and Canada Guinness sells strongly, but UK drinks company’s shares fall amid fears over US levies on Mexico and Canada
Diageo, the company behind Smirnoff vodka and Johnnie Walker whiskey, has said US tariffs could damage a recovery in its sales, hitting its tequila portfolio and Canadian whisky in particular. 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 hit to profits, with its tequila portfolio and Canadian whisky most affected.
The UK drinks company’s shares fell by 3.7% on Monday, on concerns that it will be hurt by a further 25% US tariffs on imports from Mexico and Canada, and both countries said they would retaliate. Donald Trump has paused the implementation by one month. The UK drinks company returned to sales growth in the latest half year, with strong performances in Guinness and tequila offsetting weakness in other spirits – but Donald Trump’s 25% tariffs on Canadian and Mexican imports could stop this recovery in its tracks, analysts said.
“In the US, our largest market, the products which would be impacted by the tariffs would mainly be our tequila portfolio, which given geographic origin requirements must be made in Mexico, and also Canadian whisky,” Diageo said. Diageo shares fell by a further 4% to the lowest since March 2020, following 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 who took over in June 2023, 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”. Debra Crew, the chief executive, said that the tariff situation was “very fluid”, but the firm estimates 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.
She added: “We are taking a number of actions to mitigate the impact and disruption to our business that tariffs may cause.” This could include higher prices, fewer promotions, as well reallocation of investment, inventory and supply chain management. Diageo, which also owns the Gordon’s gin brand, is also considering raising prices and running fewer promotions, as well as reallocating some investments.
The investment bank Jefferies has calculated that 46.2% 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. 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 ahead of the tariffs kicking in.
Diageo, which also owns the Guinness and Gordon’s gin brands, reported net sales of $10.9bn (£8.9bn) 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. 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 scrapped its medium-term guidance “due to the current macroeconomic and geopolitical uncertainty in many of our key markets impacting the pace of recovery”. Diageo reported net sales of $10.9bn (£8.9bn) 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 Co Kildare, west of Dublin.
The company scrapped its target of 5%-7% annual sales growth, citing the uncertainty in many of its key markets impacting 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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Diageo shares have hovered near a seven-year low, since a shock profit warning in late 2023, after a slump in sales in Latin America and the Caribbean. 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.