Diageo launches cost saving plan as sales boosted by US tariff front-loading
Last updated: 05:35 19 May 2025 EDT, First published: 02:28 19 May 2025 EDT
Diageo PLC (LSE:DGE) reported an improved rate of revenue growth in the past quarter and launched a new efficiency programme, but said sales trends were likely to reverse in the current quarter.
The maker of alcoholic drinks, including Guinness and Johnnie Walker, estimated that it is facing an unmitigated impact of around $150 million from US tariffs on an annualised basis.
It expects to mitigate around 50% of this with the first phase of a new plan of action to "create a more agile operating model", including cutting $500 million of costs, which it expects will deliver around $3 billion of free cash flow per year from its next financial year.
This is expected to also enable the group to cut debt and return to its target debt leverage ratio range of 2.5-3.0 times earnings by the year ending June 2028, supported by the "selective" sale of some of its brands over the coming years.
For the FTSE 100 group's fiscal third quarter to 31 March, net sales increased 2.9% to $4.4 billion, with organic net sales up 5.9%. This compares to a decline of 0.6% in net sales in the first half and 1.0% organic growth.
Organic sales volume increased 2.8% while price increases and the product mix contributed 3.1%, while "favourable phasing" contributed an estimated 4% of organic net sales growth as US buyers front-loaded purchases before tariffs came in.
This is expected to reverse in the fourth quarter, meaning full-year guidance remained unchanged.
Diageo shares rose almost 2% in early trading, before falling back flat by mid-morning.
** Update: Adds share price **
