By Elena Vardon

Diageo expects a $150 million annual hit on its profit from U.S. tariffs, as the ripple effects from global trade wars cast a cloud on the U.K. booze giant's efforts to turn around its performance.

The company behind Johnnie Walker whisky, Guinness beer and Smirnoff vodka on Monday said the expected tariff impact is factored in its outlook for the current fiscal year--which ends in June--and next, which it reiterated. The group also launched a restructuring program and reported sales for the March quarter that got a boost from customers' stockpiling before tariffs kicked in.

U.S. President Trump's tariffs hit liquor makers at a time they are still reeling from a pullback in consumer spending on alcohol after sales skyrocketed during the pandemic. Diageo has been seeking to rebuild confidence with investors after a major profit warning in 2023 and subdued results since then.

"We view the near-term industry pressure as largely macro-economic driven, with continued uncertainty impacting both the timing and pace of recovery," Diageo Chief Executive Debra Crew said.

The company reported a 5.9% increase in organic net sales for the quarter to March, as North American customers rushed to replenish inventories ahead of tariffs. The pull forward in imported shipments accounted for the bulk of Diageo's organic growth, and the company expects the trend to unwind this quarter.

Quarterly sales came in at $4.38 billion, up 2.9% in reported terms, it said.

Diageo estimates tariffs will lead to a $150 million hit to profit on an annualized basis before any mitigating action. However, the company expects to offset around half of the impact through measures it already put in place, before any pricing action.

The estimate assumes that the current 10% tariff on U.K. and European imports into the U.S. stay in place and that Mexican and Canadian spirits imports remain exempt, it added.

Diageo also said it would kick off a fresh turnaround program, under which it hopes to deliver $500 million in cost savings over three years. This will help it reach a target of $3 billion in free cash flow every year from fiscal 2026 onward, a figure that is expected to increase as performance improves, it said.

The company said that selective asset sales in the coming years will also support the plan, and will share more details on it alongside full-year results in August.

Diageo said it is on track to deliver a sequential improvement in its organic net sales for the second half of the year compared with the first half.

It still expects a slight decline in organic operating profit for the second half of the year ending in June and for next year's organic profit growth to surpass organic net sales growth. The tariff impact is included in its guidance for both fiscal 2025 and fiscal 2026.

Shares traded flat in morning exchanges after rising as much as 2.9% at market open after what analysts described as solid results as the reiteration of guidance despite the tariff headwinds and the new savings program reassured some investors. In a note to clients, Citi highlighted "the absence of new negatives and increasing confidence that Diageo is in control of what it can control."

In February, the group scrapped its midterm target due to uncertainty in many of its key markets that was weighing on its efforts to get performance back on track. The company said at the time it would move to provide more regular updates, having previously aimed to deliver organic net sales growth of 5% to 7% over the medium term.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

May 19, 2025 04:58 ET (08:58 GMT)

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