Tariffs could deal US$200 million blow to Guinness-owner Diageo in second half

GUINNESS-owner Diageo estimates its operating profit could be dented by roughly US$200 million if US tariffs on Mexico and Canada are implemented in March, its finance chief Nik Jhangiani said on Tuesday (Feb 4), adding it had strategies to offset the impact.

The world’s leading spirits maker generates around 45 per cent of sales in the US, its biggest market, from products that must be made in either Mexico or Canada, such as Don Julio tequila and Crown Royal Canadian whisky.

US President Donald Trump threatened to impose 25 per cent tariffs on both nations from Tuesday, but just ahead of their implementation, he suspended both levies until Mar 1.

If the tariffs are enforced, Jhangiani said Diageo anticipates a gross impact on operating profit for the remainder of its financial year, running to Jun 30, of around US$200 million, but has plans in place to mitigate the impact.

“We feel today that we could cover around 40 per cent of that before any pricing actions,” he told journalists on a call for Diageo’s interim results.

CEO Debra Crew said the estimated hit was based on the current scenario and did not take into account further escalations or retaliatory actions.

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“We’re planning for all scenarios,” she said.

Executives said Diageo’s options to mitigate the effect of tariffs included re-allocating resources, changes to its supply chain and pricing, as well as ongoing engagement with the Trump administration.

It has already implemented initiatives around “inventory management,” they said, with approaches such as shipping stock into a country before duties come into force.

The impending tariffs would be on the input cost, not the retail price, they added.

Diageo said uncertainty around tariffs prevented it from giving clearer guidance on its future earnings on Tuesday. REUTERS