Diageo Removes Sales Growth Targets as US Tariff Battle Looms

Diageo, the world's leading premium drinks company, has removed its annual sales growth targets as it braces for potential impacts from the US-China trade war and the looming threat of US tariffs on goods from Mexico and Canada. The company, which owns iconic brands like Johnnie Walker, Guinness, and Smirnoff, had previously set a target of annual sales growth of between 5 and 7 percent. However, the uncertain political and economic climate has led Diageo to reassess its goals and focus on navigating the challenges ahead.

The proposed US tariffs on goods from Mexico and Canada, which include tequila and Canadian whisky, are expected to have a significant impact on Diageo's product portfolio. The company's tequila category, which accounts for 11 percent of its global sales, is particularly vulnerable to the tariffs. Goodbody analyst Fintan Ryan estimates that the gross impact of the proposed tariffs on Diageo, excluding any mitigations or pass-through, would be $500-600 million on an annualised basis. This highlights the potential financial implications for the company and the need for Diageo to adapt its strategies accordingly.



Diageo's decision to remove its sales growth targets comes as the company faces other headwinds, including cooling demand in key markets like China and the United States, as well as changing consumer preferences towards healthier and lower-alcohol beverages. The company's shares have fallen 27 percent since Debra Crew took over as chief executive a year and a half ago, and its sales have dropped on cooling demand in China and the United States. Additionally, the owner of Guinness and Johnnie Walker surprised investors with a profit warning just months into Crew's tenure after getting caught out by piles of unsold inventory in Mexico and Brazil.

As Diageo navigates these challenges, it is also considering a review of its portfolio, including the possible sale or spin-off of Guinness. The company could run a dual-track process, weighing a listing while also gauging takeover interest, if it decides to proceed. This strategic move aligns with Diageo's long-term goals of focusing on core strengths and high-growth categories, adapting to changing consumer preferences, optimizing its capital structure, and enhancing shareholder value.

In conclusion, Diageo's removal of its sales growth targets reflects the company's recognition of the uncertain political and economic climate, as well as the potential impacts of US tariffs on its product portfolio. By focusing on navigating these challenges and reviewing its portfolio, Diageo can better position itself to adapt to changing market conditions and maintain its competitive edge in the global alcoholic beverages market.