Diageo gave a sobering read on Donald Trump’s burgeoning tariff war this week, blaming the White House for threatening to derail its recovery from a protracted post-Covid hangover.
The drinks giant said US tariffs could result in a $200m (£161m) hit on profits and deal a major blow to its nascent recovery.
As a result, the owner of Guinness, Smirnoff and Johnnie Walker this week removed its long-held medium-term target of 5% to 7% organic sales growth. However, Diageo only managed organic sales growth of 1% to $10.9bn in the six months to 31 December, which it cannot yet blame on tariffs.
Many investors will be waiting to see what the White House does next after Trump gave a 30-day reprieve on imposing tariffs on Mexican and Canadian imports this week. It should give Diageo time to get as many cases of tequila over the border into the US as possible.
Around 45% of Diageo’s US sales are from Mexico and Canada, meaning should tariffs go ahead, they could shave 10% off Diageo’s global profits, according to Bernstein’s Trevor Stirling. However, this is before any mitigation Diageo takes to try and soften the blow.
“The scale of the potential hit is much, much greater than we had feared,” Stirling said.
Diageo’s share price is down 5% in the days since publishing interims on Tuesday.
AJ Bell investment director Russ Mould noted CEO Debra Crew remained under pressure to come up with something to revive the group’s fortunes amid the threats posed by shifting drinking habits among younger generations and the impact on alcohol consumption of the adoption of weight-loss drugs.
“Since taking the helm, Crew has seen Diageo shares lose 30% of their value to trade close to pandemic lows,” he added.
Analysts at Barclays found it hard to make a firm conclusion from the latest results. Head of European beverages research Laurence Whyatt questioned whether the guidance withdrawal was due to widespread market uncertainty or “simply an attempt to under promise”.
There were several bright spots, however, with Guinness, Don Julio and Crown Royal Blackberry all performing strongly. North America, Latin America and Africa also beat expectations, although Europe and Asia still lagged behind.
Globally, Guinness recorded its eighth consecutive half of double-digit growth, helping drive total beer sales up 11%, with Diageo keen to rule out selling the brand following media speculation.
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