Diageo warns of tariff hit as it reflects on a challenging year

The London-headquartered beer and spirits giant saw profits fall almost 30% over the past year (June 2024-June 2025) as the company navigates a rocky period: most recently with its CEO stepping down.

A search for a new CEO is under way as the company sets up for further challenging times ahead.

Tariff impact

The past two years have been difficult for Diageo. It overestimated the Latin American market, which had looked so promising with consumers trading up to premium spirits, leading to overstocking in the region.

And a soft environment in North America (responsible for 40% of sales) and APAC (including the huge Chinese market) made a big mark on the company.

Last month, the company announced CEO Debra Crew would step down with immediate effect. The company is currently searching for a new CEO, with Nik Jhangiani, CFO, stepping in as interim CEO.

While assuring investors that Latin America is on the road to recovery (the Latin America and Caribbean division seeing volumes grow 3.6% over the year), the overall environment for beverage alcohol remains a ‘challenging consumer environment’, reported Diageo.

North America saw organic net sales edge up 1.5% while Europe was flat, growing 0.3%.

Tariffs now add another tumultuous dimension: although companies like Diageo have been planning around these for some time now, they still represent a challenge to the business.

Diageo now anticipates the hit from US tariffs to be around $200m a year. It’s based this calculation on three factors: firstly that a 10% tariff remains in place in the UK (important for Diageo’s Scotch whisky brands); that European imports into the US face a 15% tariff; and that Canadian and Mexican spirits imports remain except under the US-Mexico-Canada Agreement (USMCA).

Diageo says it has taken a number of actions to help mitigate the impact: including inventory management, supply chain optimization and re-allocation of investments. As a result, it expects to mitigate around 50% of the hit.

In a difficult environment, Diageo is focusing on cost savings. It now expects to deliver around $625m in costs savings over the next three years: up from the $500m pledged in May.

Savings will be made from A&P efficiencies, reduced overheads, supply chain efficiencies and trade investments. The delivery of savings is expected to be evenly spread through the three years.

“Trading conditions remained challenging through fiscal 25 for TBA [total beverage alcohol] and particularly for spirits, reflecting macroeconomic and geopolitical uncertainty as well as weak consumer confidence in many of our key markets, including the US and China,” interim Nik Jhangiani told analysts in today’s earnings call.

North America remains a challenging market: reported net sales edged up 0.8% while organic net sales grew 1.5%. Tequila was particularly successful: growing 16.9% thanks to Don Julio. But Johnnie Walker net sales were down 10.6%: due to overall scotch category weakness.

“While we are pleased with our F25 performance in the US, we are clear we need to focus on driving more balanced growth in the coming years, given the ongoing economic pressure on the US consumer and that we are lapping a period of strong share growth.

“As such we have planned for a more cautious consumer environment in this coming year.”

Looking forward

Jhangiani warns that conditions are not expected to improve immediately.

“We’re already about a month into fiscal 26 and I continue to see a challenging consumer environment,” he said.

“For the full year, we expect similar rates of organic net sales growth to those that we have seen in fiscal 25.”

Diageo expects the first half of FY26 to be subdued (partly due to lapping inventory and the late falling of Chinese New Year in the calendar) but with growth skewed to the second half of the year.

It is projecting mid-single-digit organic operating profit growth: based on tariff estimates as is known today.