Why Trump tariffs have cast a shadow on Johnnie Walker owner Diageo

Johnnie Walker and Talisker owner Diageo is talking with the US government over upcoming tariff policies which could “impact” its performance after the spirits giant reported a dip in overall half-year sales.

Chief executive Debra Crew said confirmation over the weekend that tariffs will be imposed, although delayed for at least a month in Mexico and Canada, “adds further complexity” to the group’s ability to predict future trading. Diageo said its tequila and Canadian whisky brands are expected to be particularly affected.

The warning came as 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, revealed that reported net sales dipped 0.6 per cent to $10.9 billion (£8.8bn) for the six months to December 31, as an increase in organic sales was dragged back by “unfavourable” currency exchange rates. Reported operating profit declined 4.9 per cent for the group’s first-half period.

FTSE-100 spirits giant Diageo has a vast portfolio that includes Johnnie Walker whisky, Guinness stout and Smirnoff vodka.

Crew said: “Our fiscal 2025 first-half results marked a return to growth, delivering organic net sales growth of 1 per cent despite a challenging industry backdrop as consumers continue to navigate through inflationary pressures.

“The confirmation at the weekend of the implementation of tariffs in the US, whilst anticipated, could very well impact this building momentum. It also adds further complexity in our ability to provide updated forward guidance given this is a new and dynamic situation.

“We are taking a number of actions to mitigate the impact and disruption to our business that tariffs may cause, and we will also continue to engage with the US administration on the broader impact that this will have on everyone supporting the US hospitality industry, including consumers, employees, distributors, restaurants, bars and other retail outlets.”

Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, described the results as a “solid performance given industry headwinds”, but noted that the US was Diageo’s largest market.

Johnnie Walker Black Label whisky is one the group's most famous products.

He said: “To compound matters, the biggest impact of tariffs would be felt on tequila, which is the fastest growing part of Diageo’s portfolio. The scale and breadth of Diageo’s portfolio means it is capable of meeting this challenge head on. It also has scope to accelerate productivity initiatives, which will now become even more important.

“However, with Debra Crew under mounting pressure to turn things around, the last thing she needed was more uncertainty. Trump’s tariffs cloud the outlook and are a major kick in the teeth for shareholders.”

Adam Vettese, market analyst at investment platform eToro, noted: “Not even the spectacular popularity of Guinness which saw nationwide shortages over Christmas has been able to lift the tone of what is a very cautious update from Diageo.

“Despite revenue coming in slightly ahead of forecast, the spectre of tariffs looming is a far bigger priority with the company particularly exposed. Bosses will be hoping for some kind of US-Mexico accord given they imported $1.6bn worth of tequila into the states last year.”

There has been strong demand for both regular Guinness and its zero strength version.

Ewan Andrew, Diageo’s Scots-born president of global supply and procurement, said tariffs “have a way of working themselves out over time”.

Speaking to The Scotsman, he said “Trump is a businessman. He’s clearly looking to get what he feels is right for the American people and it’s playing out quite publicly. We can plan around things like inventory management and how you can manage the flow of goods into the US ahead of any potential tariffs, and if they come into effect what you can do with investment in your portfolio and how that moves around with pricing and promotion.”

He highlighted the growth in Britain seen in the first half, with Guinness a “standout” performer though spirits were said to have been “a little tougher”.

Andrew, the group’s most senior Scotland-based executive, added: “We were pleased to see Rachel Reeves when she was at Davos coming out and making the case for Scotch to remain tariff free. Our conversations with government are around headwinds including last October’s excise duty rise. That also drives inflation whenever you put an extra cost into a product.”

Meanwhile, the group said it was “working around the clock” to increase supplies of Guinness after a “sell-out” festive period led to shortages at British pubs. Crew said sales of the iconic stout across October and November were stronger than it typically sees around St Patrick’s Day, as the drink’s popularity continues to boom. However, a raft of pubs said they faced shortages over the busy Christmas period because they were unable to meet rampant demand.

Crew said: “It has seen extraordinary growth in Britain, particularly at a time when the wider beer market is actually declining. Late last year, the demand was unprecedented. It was a sell-out period for the brand.

“We are working around the clock to replenish our stock levels and are boosting those quickly. We are spending €200 million (£166m) on a new factory in Kildare, in order to bring more capacity online.”

The update came as Diageo reiterated it is “not selling” Guinness following recent speculation it was considering a spin-off or sale deal for the historic Irish brand. Analysts had suggested the group could get as much as £8bn for the business if it sought a deal.

Andrew said: “We are absolutely, categorically not selling Guinness. Why would we?”

He said the group was also “working really hard” to ramp up distribution of the zero Guinness product which he described as a “real success story”.

Johnnie Walker-maker Diageo goes ‘from bad to worse’ after first sales slide since pandemic