Diageo Targets $500 Million Savings by 2028, Eases Tariff Concerns

Diageo, the largest spirits producer globally, announced on Monday its plan to reduce costs by $500 million by 2028 after experiencing several years of declining sales, and it also lowered its anticipated impact from U.S. tariffs as the risk of duties on Mexico and Canada diminished. The strategy will enable the producer of Johnnie Walker whisky and Guinness beer to generate approximately $3 billion in free cash flow each year starting in fiscal 2026 and decrease debt, stated CEO Debra Crew in a trading announcement.

The company stated in the announcement that the reductions in costs would be backed by "suitable and targeted sales" in the years ahead. It did not provide additional information. "Crew stated that it will also guarantee we are optimally placed to provide sustainable, stable performance while maximising returns for shareholders, even if the existing trading environment continues." Diageo's stock increased by more than 2 per cent in early trading, as analysts noted that the company's emphasis on expenses and cash flow was positive. 

The strategy comes after the hiring of new finance leader Nik Jhangiani, who started in September as the firm faced declining sales and uncertain investor trust. The cost-reduction strategy would decrease Diageo's leverage ratio and is expected to be positively received by investors "due to the evident emphasis on self-initiated solutions in the uncertain broader context," stated Fintan Ryan, an analyst at Goodbody stockbrokers, in a note.

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The spirits sector was already facing challenges due to a significant decline in sales caused by elevated interest rates and inflation when U.S. President Donald Trump revealed extensive tariff proposals that risked disrupting sales even more. Diageo announced it now anticipates an annualised impact of $150 million from the duties, reduced from the approximately $200 million projected in February, as the anticipated 25 per cent levy on Mexican tequila and Canadian whisky did not come to fruition. 

Diageo derives approximately 45 per cent of its sales in the United States from items that need to be produced in either Canada or Mexico. At present, a 10 per cent tax on imports from regions such as Britain and the European Union is impacting it. The firm announced a 5.9 per cent increase in organic sales for the third quarter and confirmed its annual projection. It indicated that growth was aided by a surge in deliveries to North America prior to the implementation of tariffs and anticipates this impact to change in the fourth quarter.