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The maker of Guinness and Johnnie Walker has warned it may have to raise prices as it scrambles to limit the impact of Donald Trump’s trade war.
London-listed Diageo said on Tuesday it would face a $200m (£161m) hit to profits if the US president follows through with this threat of 25pc tariffs on Canadian and Mexican goods from March 1.
Bosses said they were exploring numerous ways to alleviate the damage posed by tariffs, but warned prices would likely have to rise.
Ewan Andrew, of Diageo, said: “We can mitigate a lot of it before pricing, but not all.”
Roughly 45pc of Diageo’s US sales come from products made in Canada, largely whiskies, and Mexico, where it makes tequila brands such as Don Julio. Almost 85pc of the potential $200m hit is linked to tequila.
Yesterday the White House agreed to pause the introduction of tariffs on Canada and Mexico for one month amid negotiations with the countries, which are traditionally two of America’s closest allies.
Diageo, which has been meeting with officials from the Trump administration, said mounting geopolitical and economic uncertainty meant it would abandon its target of up to 7pc sales growth this year.
He said: “We’ve got people present on the ground talking to the administration, and they have met with the new administration, and tariffs have been a big part of those conversations.”
When asked if he is worried whether Mr Trump, a known teetotaller, may be less hospitable to alcohol firms, he said: “I think Trump is a businessman. He’s someone that’s looking at prosperity for the US. I think whether he does or doesn’t drink is not relevant in this matter.”
Pressure from investors
As well as potential price rises, Nik Jhangiani, Diageo’s chief financial officer, said the company was also targeting efficiencies in its supply chain.
It comes after a difficult period for Diageo, which has been hit by falling sales and declining consumer confidence.
Diageo’s share price has fallen by almost 24pc over the last year, putting the company under pressure from investors to turn around its fortunes.
Terry Smith, the star UK fund manager, dumped his stake in Diageo last year, citing worries over the long-term impact of weight-loss drugs on alcohol manufacturers.
It said on Tuesday that its sales fell by 0.6pc to $10.9bn over the six months to January, with operating profits down $3.2bn – a 4.9pc decrease compared with the prior year.
However, Debra Crew, its chief executive, highlighted the success of Guinness as a bright spot for the company, saying demand for the stout had “surpassed” expectations.