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The world’s largest spirits manufacturer, Diageo, has abandoned its medium-term sales growth target of 5-7% amid mounting pressures from potential US tariffs and global market volatility. The decision marks a significant shift in strategy for the FTSE 100 company, which will now provide more frequent short-term guidance to investors.
Chief Executive Debra Crew, who assumed leadership in June 2023, faces considerable challenges as the company navigates through uncertain waters. The recent confirmation of impending US tariffs, though delayed by a month, has cast a shadow over the organisation’s recovery prospects. Finance Director Nik Jhangiani estimates a potential £200 million hit to operating profits if the tariffs materialise, given that 45% of US sales comprise imports from Mexico and Canada.
Despite these headwinds, Diageo’s latest financial results show resilience. Net sales reached £10.9 billion in the six months to December, surpassing analysts’ expectations of £10.7 billion, with organic sales growing by 1%. However, operating profit declined 4.9% to £3.15 billion, while pre-tax profits fell to £2.8 billion from £3.3 billion year-on-year.
Regional performance varied significantly across markets. North America, representing 38% of total sales, remained flat amidst a challenging spirits market. The company’s tequila portfolio showed remarkable strength, with Don Julio sales soaring 62% in the US. Guinness continued its impressive run, contributing to an 11% increase in beer sales and helping lift European organic net sales by 1%.
The company’s strategic portfolio management is under scrutiny, with selective brand disposals being considered. Recent moves include the sale of stakes in African operations, though management firmly denies rumours about divesting the Guinness brand. The share price reflects ongoing market concerns, having declined more than 20% over the past year to £23.40.
Market analysts view the removal of medium-term targets as a pragmatic response to current market conditions. RBC analysts suggest the previous guidance framework supported “unfeasible growth aspirations,” indicating the need for more realistic expectations in the current global economic climate.
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