Diageo, the maker of Guinness stout and Johnnie Walker whisky, has scrapped a key sales growth target, citing economic uncertainty and trade tariffs imposed by former U.S. President Donald Trump.
The British drinks giant, which also owns brands like Smirnoff vodka, Baileys liqueur, and Captain Morgan rum, has seen inflation-hit consumers opt for cheaper alternatives, impacting sales of its premium products.
In a trading update on Tuesday, Diageo announced the removal of its 5-7% organic net sales growth target, attributing the decision to the “current macroeconomic and geopolitical uncertainty” across key markets.
Tariffs on Alcohol Imports Pose New Challenges
Trump’s decision to impose tariffs on imports from Canada, China, and Mexico, while threatening Europe with similar measures, has created additional complexities, said Diageo CEO Debra Crew.
“Given the uncertainty in many key markets, providing updated forward guidance is challenging,” Crew said, revealing a 12% decline in first-half net profit.
Diageo has been engaging with the Trump administration to address the potential impact of these tariffs on the U.S. hospitality industry, which relies heavily on imported alcoholic beverages.
While Trump delayed tariffs on Mexico and Canada for a month, he proceeded with punitive measures against China, prompting retaliatory tariffs from Beijing on U.S. energy, vehicles, and equipment.
Tequila and Whisky Sales at Risk
The new trade barriers are expected to disrupt Diageo’s sales, particularly affecting its tequila brands, which must be produced in Mexico under designation of origin rules. Additionally, the Canadian whisky segment is also likely to be impacted.
In its latest earnings report, Diageo revealed:
A 12% drop in net profit to $1.9 billion in the six months ending December.
A 1% decline in overall sales to $10.9 billion, reflecting a shift in consumer spending habits.
As global trade tensions continue to escalate, Diageo faces an increasingly uncertain market outlook, with tariffs adding to the economic challenges already posed by shifting consumer preferences and inflationary pressures.
