Diageo targets €440 million in cost cuts to counter US tariffs
Diageo has been affected by a slowdown in the US
Diageo plans to cut €444 million ($500 million) in costs over the next three years as it faces mounting pressure from US trade tariffs.
According to the company, the tariffs introduced under Donald Trump are expected to cost Diageo $150 million annually. The company estimates it can offset about half of this impact.
Despite these headwinds, Diageo reaffirmed its full-year guidance and anticipates stronger sales growth in the second half of its fiscal year. Shares in the company rose as much as 2.4% in early London trading, although they remain down more than 15% for the year to date.
Like many of its peers, Diageo has been affected by a slowdown in the US, its largest market and increasing global trade tensions that risk undermining consumer confidence. The company scrapped its medium-term sales growth targets in February due to ongoing market uncertainty.
In the third quarter, organic net sales rose 5.9%, surpassing analyst expectations. The increase was largely driven by wholesalers in North America accelerating purchases ahead of expected tariff announcements. Tequila brand Don Julio performed particularly well.
However, because much of that growth was front-loaded, Diageo expects a softer final quarter. Even so, the company projects second-half results will improve compared to the first.
Diageo did not provide specific details on where the cost reductions will occur. Its competitor Moët Hennessy recently announced workforce reductions amid falling demand and ongoing trade tensions with China over Cognac exports.
Citi analyst Simon Hales said the cost-cutting plan would likely be welcomed by investors. “With no new negative surprises, confidence is growing that Diageo is managing what it can control,” he noted.
The company also highlighted ongoing weakness in the Asia Pacific region and said it expects a slight year-over-year decline in organic operating profit for the second half, factoring in the tariff impact.
“Tariff uncertainty remains a distraction,” said Jefferies analyst Edward Mundy, “but Diageo is showing signs of recovery.”
