Diageo of Drinks Business, behind Guinness and Johnnie Walker Whiskey, says Donald Trump’s tariffs could reach $150 million (£112 million) each year, but expects it will ease roughly half of the expected blow.
The FTSE 100 Group, which sells alcoholic beverages such as tequila, gin and whiskey, is one of many companies that have been hit by Trump’s 10% tariff on UK and European imports.
In an update Monday, the company said its “long track record in managing international tariffs” gave it confidence to navigate the new administration well. It is in parallel with the pledge to cut approximately $500 million over the next three years as part of a wider program designed to improve efficiency.
In February, the company estimated that new trade restrictions could lead to a $200 million reduction in operating profit over the past four months to the end of June.
However, the cost-cutting plan will raise the prospects for job cuts in businesses operating in 180 countries and employing more than 30,000 people worldwide.
Aarin Chiekrie, an equity analyst for broker Hargreaves Lansdown, said Diageo could also resort to price increases to offset the impact of tariffs. “But this will take a little time to enact,” he added. “When I zoom out, the photo starts to look good in the touch for a while.
“Sales to China have been barely affected by tariffs. Latin America and the Caribbean are rapping equally weak people, with early signs that the industry is recovering from a cyclical hangover.”
Diageo, which also owns Smirnoff Vodka and Tanqueray Gin, reported a sales growth rate of 5.9% in the third quarter of March. This was reported better than forecast as US wholesalers had stock before the expected duties.
Diageo CEO Debra Crew said the company views recent pressure on the drinks industry as “mainly macroeconomically driven, with continued uncertainty affecting the timing and pace of recovery.”
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Earlier this year, Diageo abolished its mid-term sales target due to poor growth and the outlook for tariffs in the largest market, the US. Previous sales targets were set in 2021 by Ivan Menezes, the predecessor of the crew.
Last year, the crew appointed new financial director Nick Giangiani, a veteran executive recruited by bottling company Coca-Cola Enterprises.
Diageo shares rose up up 2.6% in early trading on Monday. However, the continued uncertainty regarding tariffs means that stocks have struggled this year, falling about 13% since January.
