Diageo, the spirits maker behind global brands like Johnnie Walker and Tanqueray, announced Tuesday that it is adjusting its strategies due to the ongoing uncertainty surrounding US tariffs.
CEO Debra Crew stated that the prospect of tariffs on key supply chain regions, including Canada and Mexico, is expected to complicate the company’s recovery from falling sales.
As a result, Diageo has removed its medium-term sales growth guidance, which had previously forecasted organic growth between 5% and 7%.
The announcement comes as Diageo and its competitors, including David Campari and Pernod Ricard, face declining stock prices—Diageo’s shares fell by nearly 4% by mid-morning in London.
Actions Diageo is taking to mitigate US tariff impact
Diageo is taking several measures to counter the potential impact of US tariffs on its business.
Chief Financial Officer Nik Jhangiani revealed during the company’s earnings call that they are implementing pricing strategies, inventory management adjustments, and supply chain reallocation to reduce disruption.
The company will also continue its engagement with the US administration, emphasizing the broader impact of tariffs on the hospitality sector, including consumers, employees, and distributors.
Despite the uncertainty, Jhangiani stated that Diageo will provide further updates once it can more accurately predict the financial implications of the tariffs.
Hargreaves Lansdown analyst Derren Nathan said:
For now, tariff headlines will set the mood – but if the trade war ends in more posturing than penalties, Diageo’s world-class brands and global reach could make the current valuation an attractive entry point.
Tanqueray, Gordon’s, and Smirnoff see sales decline
Diageo’s interim earnings report showed a slight 0.6% decline in first-half sales, totaling $10.9 billion, slightly exceeding analyst expectations of $10.7 billion.
However, the company faced significant sales declines in major brands such as Tanqueray, Gordon’s, and Smirnoff.
The exception was Guinness, which posted strong double-digit growth for the eighth consecutive half-year period, despite supply chain disruptions that led to shortages during the holiday season.
The broader alcoholic beverage sector is under pressure, with Diageo grappling with several challenges beyond tariffs.
These include declining sales, management changes, and shifting consumer preferences, such as the rise of low- and no-alcohol products and the potential impact of weight-loss drugs on alcohol consumption.
Impact of tariffs on US imports
Nearly half of Diageo’s US sales—46.2%, according to Jefferies analysts—are derived from products imported from Mexico and Canada, including popular brands like Crown Royal, Don Julio, and Casamigos.
Analysts suggest that the company may need to raise prices for US consumers by approximately 4.6% to offset tariff impacts, even before considering any potential new tariffs on European Union goods.
This tariff exposure is more pronounced for Diageo compared to its competitors.
Italy’s Campari Group, for example, derives just over 35% of US sales from Mexican and Canadian imports, while France’s Pernod Ricard imports only 6%.
Diageo share price forecast
Diageo’s financial troubles have been compounded by a series of challenges, including its first global sales decline since 2020, a 1.4% drop to $20.3 billion in the year ended June 2024.
Despite considering the sale of its Guinness brand or its stake in LVMH’s Moet Hennessy drinks unit, Diageo stated in January that it had no intention of pursuing such sales.
The company’s stock remains near pandemic-era lows, underlining the market’s concerns about its long-term growth prospects.
Interactive Investor head of markets Richard Hunter said developments over the last year have taken the sheen from a stock traditionally regarded as a core portfolio constituent.
“The scale of the challenges ahead is reflected in a share price which has fallen by 20% over the last year, as compared to a gain of 12.7% for the wider FTSE 100, and by 34% over the last two years,” he said.
“It, therefore, follows that until such time as an improvement in customer demand becomes evident and the true impacts of any tariffs can be dealt with, the market consensus of the shares as a hold is likely to remain in place.”
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