London, UK — Drinks giant Diageo has warned that it faces an annual hit of around £113 million due to fresh US trade tariffs, prompting the company to launch a sweeping $500 million (£375.6m) cost-cutting programme aimed at softening the blow.
The maker of household names like Guinness, Johnnie Walker, Baileys, and Gordon’s Gin said it is preparing for a 10% tariff on UK and EU spirits exports to the US, a move introduced by former President Donald Trump as part of a wider protectionist trade agenda.
Diageo stated on Monday that it expects to absorb around half of the tariff costs through existing mitigation plans and will continue to explore “further measures” to shield profits from ongoing trade tensions.
Despite the challenge, the latest estimate represents an improvement on February’s forecast, when the firm braced for a £161 million blow, suggesting that some tariff-related disruption has already been absorbed or reduced through strategic planning.
Crucially, Diageo confirmed that it will not be affected by the US-China tariff disputes, which have impacted other sectors heavily.
In response to the mounting pressure, Diageo has initiated a cost-saving initiative worth $500 million, focusing on a shift towards a more agile global operating model. The company, which employs around 30,000 people globally, did not specify whether the changes would result in job losses, but industry analysts suspect some restructuring is likely.
The aim of the overhaul, Diageo said, is to free up resources for reinvestment and strengthen the company’s financial footing, especially as it continues to navigate global macroeconomic challenges.
In its third-quarter trading update, Diageo reported net sales of $4.37 billion (£3.28 billion), up 2.9% compared with the same period last year. Strong sales of Guinness played a leading role, particularly in North America.
Sales in Europe dipped by 1.3%, as gains in Guinness were offset by “further softness” in spirits across several markets. Organic spirits sales in the region were down year-on-year, although demand for tequila remained buoyant.
In North America, by contrast, sales rose by 5.9%, driven largely by robust shipments of US spirits and what analysts described as stockpiling ahead of the expected tariffs.
Speaking on the results, Debra Crew, Chief Executive of Diageo, said:
“In the third quarter, we delivered strong organic net sales growth and remain on course to meet our guidance for improved organic performance in the second half of fiscal 2025.
We’ve reiterated our operating profit outlook for the year, factoring in the current understanding of tariff impacts. Despite near-term industry pressure, we are confident in the long-term health of our sector and our ability to outperform.”
Ms Crew acknowledged the broader economic headwinds, adding that market recovery remains fragile and unpredictable, with consumer spending trends still being influenced by inflation and post-pandemic shifts.
AJ Bell investment director Russ Mould noted:
“Investors were braced for a bad quarter from Diageo, yet the drinks giant has managed to pull a rabbit out of the hat.
Sales were lifted both by price increases and wholesalers stocking up in anticipation of tariffs.”
Analysts believe that Diageo’s proactive cost-cutting strategy and global diversification will help it weather the storm, although the political risk of shifting US trade policy could continue to cast a shadow over the company’s export performance in the coming quarters.
As the dust settles on this latest round of trade tensions, Diageo’s investors will be watching closely to see whether the group can maintain its balance between protecting profits and driving global growth, especially in the face of further potential changes in US trade leadership and policy.