Diageo scraps growth guidance as US tariff threat dents outlook

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Drinks maker Diageo has scrapped its long-standing sales growth guidance, blaming the uncertainty over US tariffs and weak demand in key markets, as the company comes under pressure from investors to improve performance.

The London-listed maker of Don Julio tequila, Guinness and Johnnie Walker whisky said on Tuesday that sales in the six months to the end of December fell 0.6 per cent to $10.9bn. Operating profit fell to $3.2bn for the period, 4.9 per cent lower than the same period a year earlier.

The group’s decision to ditch its 5 to 7 per cent target for medium-term organic sales growth came as it faces uncertainty over the impact of a global trade war.

US President Donald Trump on Monday pulled back from imposing 25 per cent tariffs on US imports from Mexico and Canada, giving the countries a 30-day reprieve. Diageo is the spirits group most exposed if the US goes ahead with the levies.

Chief financial officer Nik Jhangiani estimated a $200mn hit to operating profit in the financial year to June 2025 if the tariffs were implemented in March.

“We feel today that we could cover about 40 per cent of that before any pricing action,” Jhangiani said.

Some 45 per cent of the company’s net sales value is from products made in Canada or Mexico, such as Casamigos tequila and Crown Royal Canadian whisky. Of the $200mn impact, 85 per cent was related to tequila from Mexico, Jhangiani said.

The company said the mitigation measures included shipping extra inventory to the US before the tariffs kick in.

Diageo chief executive Debra Crew said the company had planned for potential tariffs but that the prospect of the levies “adds further complexity in our ability to provide updated forward guidance given this is a new and dynamic situation”.

Shares fell 2.9 per cent in early trading in London on Tuesday.

Diageo was already under pressure from investors, with confidence in the company’s management waning since Crew issued a shock profit warning in late 2023 following a sales slump in Latin America.

Its share price has fallen about a fifth in the past 12 months as investors have grown weary of the company’s poor performance.

The industry’s long-term growth prospects have also faced scepticism. Demand for spirits in the category’s US market has faltered, prompting concerns that a trend for moderation among health-conscious consumers and the proliferation of weight-loss drugs and cannabis will dent demand.

The volume of drinks it sold during the second half of 2024 dropped 0.2 per cent as consumers cut back.

Despite those concerns, Crew said the company remained “confident of favourable long-term industry fundamentals and more importantly in our ability to outperform the market”.