Diageo expects US tariffs will cost it around $150m a year even with the greatest threat of duties on Mexican and Canadian spirits now seemingly eased.
The costs arise solely from the 10% tariff on UK and European imports to the US, with tariffs between the US and China having no material impact on the business.
The drinks giant believes cost-saving programmes already in place will allow it to mitigate about half the impact without price rises.
Tariff turmoil
The impact could have been much worse had Donald Trump pushed ahead with tariffs on imports from Mexico and Canada. In February, some analysts predicted up to 10% of Diageo’s global profits could be lost if these went ahead.
The tariffs led to a fleeting sales boost for Diageo at the start of the year as the company brought forward US shipments ahead of the import taxes kicking in.
Organic net sales rose 5.9% in the three months to 31 March, with about 4% of this from bringing orders forward. Diageo expects the trend to unwind in the next quarter.
Diageo therefore made no changes to its full-year sales expectations and still expects a slight decline in operating profits.
Accelerate programme
To help mitigate some of the costs, Diageo confirmed on Monday it was launching the first phase of its ‘Accelerate’ programme designed to move the company to a more agile global operating model.
The company said this will deliver around $3bn in free cashflow per year by 2026, supported by a $500m cost-saving programme.
CEO Debra Crew said the scheme “sets out clear near-term cash delivery targets and a disciplined approach to operational excellence and cost efficiency. It will strengthen Diageo by increasing our effectiveness, agility, and resilience.
“It will also ensure we are well positioned to deliver sustainable, consistent performance while maximising shareholder returns, even if current trading conditions persist.”
Crew said more details on Accelerate will be shared at its full-year results in August.
Diageo’s share price was up 2% in early trading on Monday morning.
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