Diageo, the global drinks giant behind household names such as Johnnie Walker, Guinness, Gordon’s gin, and Baileys, has reported a robust set of third quarter results, while simultaneously bracing for a significant hit from new US tariffs and unveiling a sweeping cost-saving initiative.
Strong Organic Growth, but Boosted by One-Offs
For the three months to 31 March 2025, Diageo posted a 5.9% rise in organic net sales, with volumes up 2.8% and a 3.1% improvement in price/mix. Reported net sales increased by 2.9% to $4.4 billion (£3.28 billion), with the difference reflecting adverse currency movements and recent disposals.
The strongest growth was seen in Latin America and the Caribbean (up 29%) and Africa (up 10%), while North America delivered a 6.2% organic increase. Europe, however, saw a slight organic decline of 0.4%.
A key factor behind the North American performance was customers bringing forward purchases ahead of newly imposed US tariffs. Management estimates this timing effect contributed around four percentage points to the group’s organic net sales growth for the quarter and expects it to reverse in the final quarter of the year.
Charlie Huggins, Manager of the Quality Shares Portfolio at Wealth Club, noted:
“Diageo’s strong performance in the latest quarter had been significantly flattered by a number of one-offs, most notably a pull-forward of purchasing in anticipation of tariffs in the US.
“These impacts are estimated to have boosted sales by 4% in the third quarter and are expected to largely reverse in the fourth quarter. Even so, there are some positives for investors to take away from this statement. Despite the challenging market backdrop, Diageo has reiterated its full-year guidance.
“The impact of tariffs appears manageable, for now at least. In addition, Diageo has launched a productivity programme, aimed at boosting cash flow and margins. This should help get profit moving in the right direction, even if tough trading conditions persist”.
Tariff Impact and Mitigation
Diageo now expects an annualised profit hit of around $150 million (£113 million) from the 10% tariff imposed by the US on imports from the UK and Europe, a reduction from its earlier estimate of $200 million. The company believes its current strategies, including price increases, cost controls, and supply chain management, will mitigate about half of this impact and is committed to further action if necessary.
The group received some relief after US authorities exempted alcoholic beverages from Canada and Mexico from additional tariffs, and it confirmed it would not be affected by tariffs between the US and China.
Cost-Cutting and Productivity Drive
In response to these pressures, Diageo has launched the first phase of its “Accelerate” programme, targeting $3 billion of free cash flow per year from fiscal 2026 and $500 million (£375.6 million) in cost savings over three years. The company aims to transition to a more agile global operating model, supporting further investment and improving financial leverage. CEO Debra Crew stated this would “position us strongly to ensure sustainable and consistent performance while maximising returns for our shareholders, even under the current market conditions”.
Outlook and Market Reaction
Despite the headwinds, Diageo has reiterated its full-year guidance for both organic net sales and operating profit. The company expects sequential improvement in organic net sales growth in the second half of fiscal 2025, but operating profits are still anticipated to fall due to the tariff impact.
Analysts have welcomed the cost-saving measures and the maintenance of guidance, although they caution that the trading environment remains challenging. Diageo’s share price, which had fallen 24% over the past year, stabilised on the update as investors found some reassurance in the group’s proactive response.
While Diageo’s Q3 results were buoyed by temporary factors, the company faces a testing period ahead as the US tariffs bite and consumer trends remain uncertain in some regions. The newly announced productivity programme and focus on cash generation are seen as necessary steps to navigate the current turbulence and restore investor confidence under CEO Debra Crew’s leadership.
