London (AFP) – Diageo, the maker of Guinness stout and Smirnoff Vodka, reported Tuesday a sharp drop in annual net profit and raised its cost-savings targets as US tariffs hit. Net profit tumbled 39 percent to $2.4 billion in its financial year to the end of June, compared with one year earlier, the British group said in an earnings statement just weeks after the sudden departure of chief executive Debra Crew. Diageo’s revenue dipped slightly to $20.2 billion.
“Macroeconomic uncertainty and the resulting pressure on consumers” has weighed on the spirits sector, interim CEO Nik Jhangiani said of a “challenging year” for the group. Diageo last month announced the abrupt departure of Crew after two years at the helm. The company had already experienced a tough trading environment ahead of announcing in May that it faced a financial hit from US President Donald Trump’s tariffs onslaught.
Diageo, which also makes Don Julio tequila, ramped up its cost-saving programme on Tuesday to around $625 million over three years, from a previous target of $500 million. Its annual profit was hit also by restructuring costs and impairment charges. Shares in the company, however, jumped more than six percent in morning deals on London’s FTSE 100 index as investors cheered the new cost-saving targets and better-than-expected sales.
Diageo reiterated that it expects operating profit to take a $200-million hit from Trump’s tariffs, though around half the amount would be offset by cuts to costs. Its forecasts assume that spirits imported from Mexico and Canada will remain exempt from tariffs, while a 10-percent tariff on imports from the UK and a 15-percent levy on imports from the European Union will apply.
Diageo added that sales of key brands Don Julio and Guinness stout grew 37 percent and 12 percent respectively, offsetting weakness elsewhere. Investors “need to determine if the downturn in alcohol consumption is a short-term effect of squeezed disposable income or the start of a broader trend away from drinking altogether for health and lifestyle reasons,” said AJ Bell investment director Russ Mould. “Sales of some brands may be on the agenda for any incoming new boss given a need to get the balance sheet in better shape — although the company will not want to lose any of its crown jewels.”
© 2024 AFP
