Johnnie Walker proprietor Diageo says Trump tariffs may hit income by $200m

Diageo, the corporate behind Smirnoff vodka and Johnnie Walker whisky, has stated US tariffs may injury a nascent restoration in its gross sales and lead to a $200m (£161m) hit to income, with its tequila portfolio and Canadian whisky most affected.

The UK drinks firm returned to gross sales development within the newest half yr, as sturdy performances for Guinness and tequila offset weak point in different spirits – however Donald Trump’s 25% tariffs on Canadian and Mexican imports may cease this restoration in its tracks, analysts stated.

Diageo shares fell by an extra 4% to the bottom since March 2020, after a 3.7% drop on Monday, on considerations in regards to the impression of the tariffs on the US, its largest market. Canada and Mexico stated they might retaliate. Donald Trump has paused the implementation by one month to permit for negotiation.

Debra Crew, the chief government, stated that the tariff state of affairs was “very fluid”, however the firm estimated it may result in a $200m discount in working revenue over the past 4 months of its monetary yr, with 85% associated to tequila, which needs to be made in Mexico.

Diageo, which additionally owns the Gordon’s gin model, can be contemplating elevating costs and working fewer promotions, in addition to reallocating some investments.

Nik Jhangiani, Diageo’s new monetary officer, stated the corporate “may cowl 40% [of the hit] earlier than any pricing motion”. Diageo intends to ship extra merchandise into the US earlier than the tariffs kick in.

Crew stated Diageo had deliberate for plenty of potential situations concerning tariffs, however stated the brand new duties introduced over the weekend “may very nicely impression this constructing momentum” in gross sales.

Diageo reported internet gross sales of $10.9bn within the six months to December, down by 0.6%, whereas natural gross sales returned to development, of 1%. It made a revenue earlier than tax of $2.8bn, down from $3.3bn a yr earlier.

Whereas gross sales of spirits declined by 3%, beer revenues grew by 13%, led by Guinness. Gross sales of the non-alcoholic model Guinness 0.0 almost doubled. The corporate has struggled to maintain up with demand however Crew stated “we’ll get beer out as rapidly as we presumably can”, pointing to a brand new brewery in County Kildare, west of Dublin.

The corporate scrapped its goal of 5%-7% annual gross sales development, saying that the uncertainty in lots of its key markets was affecting the tempo of restoration.

The goal was set by Crew’s predecessor, the late Ivan Menezes, in 2021 however analysts had stated the purpose appeared more and more troublesome for the corporate to achieve.

Crew stated US shoppers remained cautious, beneath stress from grocery worth inflation at a 30-year excessive, bank card debt and still-high rates of interest.

The funding financial institution Jefferies has calculated that 46% of Diageo’s USrevenues are from items imported from Mexico and Canada, together with manufacturers reminiscent of Crown Royal, Don Julio and Casamigos. Together with different European drinks makers reminiscent of Pernod Ricard, Campari and Remy Cointreau, the agency may be harm by potential increased tariffs of EU merchandise into the US.

Charlie Huggins, of the Wealth Membership funding service, stated that with Crew “beneath mounting stress to show issues round, the very last thing she wanted was extra uncertainty. Trump’s tariffs cloud the outlook and are a serious kick within the tooth for shareholders.”

Diageo shares have hovered close to a seven-year low because it issued a shock revenue warning in late 2023, after a droop in gross sales in Latin America and the Caribbean.

Veteran fund supervisor Terry Smith, the founding father of Fundsmith, not too long ago bought its stake in Diageo due to considerations that the rise in using weight-loss medicines reminiscent of Wegovy and Ozempic may take its toll on the complete drinks sector.

Crew stated the corporate was monitoring the state of affairs however may see “no materials impression” to date, past a broader development over the previous decade that factors to health-conscious shoppers ingesting much less. She added that individuals nonetheless wished to drink premium spirits.