Drinks giant Diageo has scrapped a key sales growth target after its admitted President Trump’s threatened tariffs against Mexico and Canada could wipe $200 million off profits in the second half of the year.
The Guinness to Johnnie Walker multinational exports tequila from Mexico and whiskey from Canada into the huge US market and together they account for about 45$ of US sales. Tariffs of 25% due to come into effect today have now been put on hold for a month following talks last ditch talks with Mexico’s President Claudia Sheinbaum and Canada’s Prime Minister Pierre Trudeau.
The company said the “extremely fluid” situation “and the potential for further developments increases the complexity in providing updated guidance given this evolving situation. In particular, while we are encouraged by the momentum built in H1, building on this may be more challenging as we work through the disruption from these developments.”
The company, which announced a small increase in sales and a 10% fall in earnings in the six months to end December, cautioned that the uncertainty meant that it has dropped its medium term guidance of 5% to 7% organic net sales growth. Instead, “we will provide more regular near-term guidance and trading updates in the interim, Diageo said.
In the fist half of the year organic net sales rose just 1% to £10.9 billion while pre-tax profits were 10% lower at £2.77 billion, a fall that the company blamed mainly on “unfavourable currency movements” and a lower contribution from its stake in Moët Hennessy as well as higher costs and investment. New CFO Nik Jhangiani said the fall year results were likely to see “a small in profits” although this could be further impacted if the trade war with Mexico and Canada reignites in March.
In Great Britain, the group’s sales grew 2% as it was buoyed by soaring demand for Guinness, despite “temporary supply constraints” in recent months.
British pubs reported shortages of Guinness over the Christmas period as they were unable to secure enough of the beer to meet high demand.
Guinness sales growth offset weaker spirit sales in Britain, which were down by around 6% for the half-year.
Richard Hunter, Head of Markets at interactive investor, commented “These are testing times for Diageo, and the immediate challenges are leading to a glass half-empty outlook.
“The products which are most affected by such tariffs would be its successful tequila brands as well as Canadian whisky, which could leave the group with little option but to hike prices at a time when discretionary spend generally has been under some pressure.”
