Diageo is set to hit full-year forecasts and launch a US$500m cost-saving drive. But US tariffs are expected to shave $150m a year from its earnings, despite partial mitigation.
On the positive side, the world’s biggest premium spirits group has confirmed that it is on track to meet its full-year forecast in recovering much of the ground lost after the disastrous profits warning 18 months ago.
It is also launching a $500 million cost-saving programme to boost its business in the longer term.
Tariff challenges weigh on outlook
Negatively, it calculates that US President Trump’s tariffs will cost it $150 million a year, but it predicts that it will be able to mitigate about half that sum. Originally, Diageo had projected that Trump’s
policies would cost it $200m a year.
Chief executive Debra Crew said: “Our long track record of managing international tariffs gives us confidence in our ability to navigate this successfully.”
Sales growth supports forecast
Announcing the latest sales figures, she said: “In the third quarter [from Christmas to the end of March] we delivered strong organic net sales growth and are on track to deliver on our guidance of sequential improvement in organic net sales performance in the second half of fiscal 25.
In February, Diageo jettisoned its medium-term sales growth target of 5% to 7%, blaming uncertainty over US tariffs and weak demand in key markets.
Long-term optimism remains
Taking a positive view, Crew said: “We also reiterated our organic operating profit outlook for fiscal 25, including the impact of tariffs based on what we know at this time. 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.”
Regional performance varies
Diageo’s reported net sales for the third quarter increased by 2.9% to $4.4bn.
Organic net sales were up 5.9% in the quarter, with organic volume up 2.8% and positive price/mix of 3.1%.
That takes organic growth for the first nine months of Diageo’s financial year to 2.4% on a 0.6% increase in volumes.
Encouragingly, all regions achieved a positive price/mix except Asia Pacific, where “continued consumer downtrading and adverse market mix impacted net sales”.
North America and Guinness shine
In the vital North American market, which accounts for about 40% of Diageo’s
business, organic net sales grew by 6% driven by strong shipment growth as distributors stocked up in anticipation of Trump’s tariffs.
Organic net sales of Diageo’s US spirits were 7% ahead.
In Europe, where Guinness was a star performer, organic net sales were broadly flat despite a 7% improvement in price mix.
Cost-saving plan to drive future gains
Crew also announced the first phase of her $500m Accelerate cost-saving programme, which, she said, “will strengthen Diageo by increasing our effectiveness, agility, and resilience.
“It will also ensure that we are well-positioned to deliver sustainable, consistent performance while maximising shareholder returns, even if current trading conditions persist.”
The cost-cutting is projected to deliver about $3bn in free cash flow a year from 2026 and reduce Diageo’s debt levels to a more comfortable range by 2028.
Market reaction
The sales figures and associated comments were well received by investors, with Diageo’s share price jumping by more than 2% to £22 in early trading today on the London stock market.
