Johnnie Walker owner Diageo sets out $500m cost-cutting drive amid $150m US tariff hit

Johnnie Walker and Talisker owner Diageo has warned that it expects US trade tariffs to cost it some $150 million (£113m) annually as the whisky giant launched a major cost-cutting plan.

The world’s largest spirits maker, which has almost 30 malt distilleries in Scotland and owns global brands such as Johnnie Walker whisky, Guinness stout, Smirnoff vodka and Captain Morgan rum, said it would be impacted by a 10 per cent tariff on UK and European imports into the US, after President Donald Trump launched a raft of tariffs last month. It said it believes its current plans will mitigate around half of the impact of these higher costs on its profit and it will work on further measures to offset the impact.

However, it reflects an improving outlook after Diageo said in February that it was bracing for a potential $200 million US dollar (£161 million) hit to profits from tariffs. The firm was set to face a significant knock from proposed tariffs on US imports from Canada and Mexico, but was buoyed by an exemption on alcoholic drinks in March.

Spirits giant Diageo has a vast portfolio that includes Johnnie Walker whisky, Guinness stout and Smirnoff vodka.

Diageo also stressed in its latest update that it will not be affected by tariffs between the US and China.

It came as the company launched a $500m (£375.6m) cost-saving programme, in order to support further investment and improve its leverage. The London-listed firm, which also makes Gordon’s gin and Baileys, said it will shift to “a more agile global operating model” as it seeks to improve its cash flow.

Meanwhile, the group reported that net sales grew by 2.9 per cent to $4.37 billion (£3.28bn) for the three months to the end of March, amid a boost from continued strong Guinness sales.

In Europe, sales dipped 1.3 per cent for the quarter as higher Guinness sales were offset by “further softness” in spirits across key markets.

Johnnie Walker Black Label is among the firm's most popular products.

Organic spirit sales were weaker year-on-year in the region, despite increased demand for tequila. However, sales in North America grew by 5.9 per cent amid strong shipments of US spirits.

Diageo chief executive Debra Crew said: “In the third quarter we delivered strong organic net sales growth and are on track to deliver on our guidance of sequential improvement in organic net sales performance in the second half of fiscal 2025. We also reiterated our organic operating profit outlook for fiscal 2025, including the impact of tariffs based on what we know at this time.

“We continue to believe in the attractive long-term fundamentals of our industry and in our ability to outperform the market. We view the near-term industry pressure as largely macro-economic driven, with continued uncertainty impacting both the timing and pace of recovery,” she added.

“Consistent with our strategic priorities and our focus on what we can manage and control, we are introducing the first phase of our Accelerate programme. This sets out clear near-term cash delivery targets and a disciplined approach to operational excellence and cost efficiency.”

Diageo has almost 30 malt distilleries in Scotland.

Richard Hunter, head of markets at investment platform Interactive Investor, said Diageo was “not out of the woods yet by a fair margin”, though the latest quarter’s numbers had provided “some glimmers of hope”.

He added: “The current effects of the tariffs are likely to cause an annualised hit of some $150m on profits although the group estimates that its mitigating actions, such as increasing prices, cost control and supply chain management will limit the damage.

“The group has maintained its guidance for the full year in terms of organic net sales growth and operating profit. Even so, the developments over the last year have taken the sheen from a stock traditionally regarded as a core portfolio constituent, despite the group’s sprawling geographical footprint and portfolio of famous brands.

“The price decline has stabilised, although the scale of the challenges ahead is reflected in a share price which has fallen by 24 per cent over the last year.”

Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, said the spirit giant’s strong performance in the latest quarter had been “significantly flattered” by a number of one-offs, most notably a pull-forward of purchasing in anticipation of tariffs in the US.

“These impacts are estimated to have boosted sales by 4 per cent in the third quarter and are expected to largely reverse in the fourth quarter,” he noted. “Even so, there are some positives for investors to take away from this statement.

“Despite the challenging market backdrop, Diageo has reiterated its full-year guidance. The impact of tariffs appears manageable, for now at least. In addition, Diageo has launched a productivity programme, aimed at boosting cash flow and margins. This should help get profit moving in the right direction, even if tough trading conditions persist.

“With pressure mounting on CEO, Debra Crew, restoring investor confidence is paramount. The increased focus on margins and cash is a step in the right direction and buys her a bit more time in what remains a challenging market backdrop.”

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, added: “Diageo managed to serve up solid growth in the first quarter, with sales benefiting from a good mix of both price and volume growth.

“Diageo has a world-class cocktail of brands, including Guinness, Smirnoff, Johnnie Walker and Tanqueray. These powerhouse brands have helped all regions manage to squeeze through price hikes except Asia Pacific, which continued to see consumers downtrading to cheaper brands, which weighed on sales.”

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