UK spirits major Diageo has pulled its medium-term guidance, citing “macroeconomic and geopolitical uncertainty”.
The Johnnie Walker brand owner had previously forecasted medium-term organic top-line growth of 5-7% when it reported annual results for fiscal 2024 in July.
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That guidance was “removed” today (4 February) as Diageo released its first-half numbers for the 2025 financial year.
CEO Debra Crew said US President Donald Trump’s tariffs plan “adds further complexity in our ability to provide updated forward guidance given this is a new and dynamic situation”.
If US tariffs were absent, the Tanqueray distiller said it would have projected “a sequential improvement” in sales growth today over the corresponding period.
Crew added: “Diageo has anticipated and planned for a number of potential scenarios regarding tariffs in recent months. The confirmation at the weekend of the implementation of tariffs in the US, whilst anticipated, could very well impact this building momentum.”
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By GlobalDataIn the slipstream of Trump’s weekend announcement that he would slap tariffs on Mexico and Canada, the President then revealed yesterday that he had paused his plan following negotiations with his Mexican counterpart Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau.
The tariff implementation has been put on hold for a month after both Canada and Mexico agreed to a clutch of measures to tighten border security.
In its interim results for the six months ended 31 December 2024, Diageo saw organic net sales grow 1% to $10.9bn but they declined 0.6% on a reported basis.
Operating profit dipped 4.9% on a reported basis and 1% organically, to $3.2bn.
Meanwhile, total group volumes remained flat year on year at 122.8 million equivalent units.
Regional volumes in the six-month period were down across all the company’s markets besides Asia Pacific on a reported basis.
Asia-Pacific net sales dipped the most out of all of Diageo’s markets, declining 4% to $96m on a reported basis and 3% to $55m organically, driven by a weaker performance south-east Asia and Greater China.
Diageo’s North America market, which has seen a shaky performance over the past year, saw flat reported and organic net sales in the first half at $11m and $10m, respectively.
Reported and organic sales volumes were also down 3% in the region to 0.9 million equivalent units.
The Guinness brewer’s Latin America and Caribbean market saw organic net sales return to growth on an organic basis, increasing 5% to $54m. Reported net sales in the region were still down 2% at $19m.
“While the pace of recovery has been slower in several key markets, we remain confident of favourable long-term industry fundamentals and more importantly in our ability to outperform the market,” Crew said.
“Spirits remains an attractive sector with a long runway for growth, as we expect to continue to gain share within Total Beverage Alcohol (TBA). Additionally, our investments in digital capabilities, supply chain, and our transformational route-to-market changes will all be supportive in driving long-term sustainable growth, and I am pleased that we are already seeing early benefits from changes in our US route-to-market transformation.”
The results were “broadly consistent with market expectations”, Stifel analysts wrote in a note to investors this morning, which in itself “is an already solid performance”.
Barclays analysts, meanwhile, described Diageo’s performance as “underpromising”.
They said: “It is hard to make a firm conclusion from these results. On the positive side, four out of five divisions are in growth, with strong momentum in some key brands. On the flip side, the guidance has been withdrawn and consensus is being downgraded, which could either be interpreted as increased market uncertainty, coupled with structurally weaker consumers or simply an attempt to underpromise.”
Tariffs planning
The Captain Morgan rum producer said it has several “possible actions” prepared to futureproof itself against the potential effects of tariffs if and when they come into play.
These include “pricing and promotion management, inventory management, supply chain optimisation and re-allocation of investments”, the group said.
It added: “We will continue to be agile and respond with speed as key details are confirmed.”
Speaking in Diageo’s prepared remarks today, CFO Nik Jhangiani said its two key products that would be affected by tariffs are Tequila and Canadian whisky.
“The vast majority of our net sales impacted is from Mexico,” he added, stressing that tariffs would solely affect input costs.
The potential future impact of tariffs in the US “remain the main question mark”, the Stifel analysts note said, underlining that North America’s flat sales growth in the first half was dependent on Tequila and Canadian whisky.
