Johnnie Walker and Guinness owner Diageo is forecast a $150m hit from US President Donald Trump’s tariffs and has instigated a $500 million programme of cutbacks.

The world’s top spirits maker reported a 2.9% increase in net sales for the third quarter to $4.4bn, with positive organic growth partially offset by unfavourable foreign exchange and disposals.

It said that assuming the current tariff plans remain in place “the unmitigated impact of these tariffs is estimated to be c.$150m on an annualised basis”.

Tariffs between the US and China do not have a material impact on the business.

“We expect that given the actions that we have in place already, before any pricing, we will be able to mitigate around half of this impact on operating profit on an ongoing basis,” the company said in a trading update.

“Looking ahead, we will continue to work on measures to mitigate this impact further. Our long track record of managing international tariffs gives us confidence in our ability to navigate this successfully. The expected impact in fiscal 25 and fiscal 26 is included in our guidance.”

Debra Crew, chief executive, said: “In the third quarter we delivered strong organic net sales growth and are on track to deliver on our guidance of sequential improvement in organic net sales performance in the second half of fiscal 25.

“We also reiterated our organic operating profit outlook for fiscal 25, including the impact of tariffs based on what we know at this time.

“We continue to believe in the attractive long-term fundamentals of our industry and in our ability to outperform the market. We view the near-term industry pressure as largely macro-economic driven, with continued uncertainty impacting both the timing and pace of recovery.

“Consistent with our strategic priorities and our focus on what we can manage and control, we are introducing the first phase of our Accelerate programme.

“This sets out clear near-term cash delivery targets and a disciplined approach to operational excellence and cost efficiency. It will strengthen Diageo by increasing our effectiveness, agility, and resilience. It will also ensure that we are well-positioned to deliver sustainable, consistent performance while maximising shareholder returns; even if current trading conditions persist.

“We look forward to sharing more detail on Accelerate with our full year results in August.”

Market reaction

Charlie Huggins at Wealth Club, who owns shares in Diageo, said: “Diageo’s strong performance in the third quarter was significantly flattered by a number of one-offs, most notably a pull-forward of purchasing in anticipation of tariffs in North America. 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.

“With pressure mounting on CEO, Debra Crew, restoring investor confidence is paramount. The increased focus on margins and cash is a step in the right direction and buys her a bit more time in what remains a challenging market backdrop.”