Diageo, the owner of Guinness, is facing potential financial setbacks due to the looming threat of tariffs on products imported from Mexico and Canada. The company estimates a $200 million hit to its operating profits in the next financial quarter if these tariffs come into effect in March.
During an earnings call, Nik Jhangiani, Diageo’s chief financial officer, revealed that 45% of the company’s net sales in the U.S. come from products made in Mexico and Canada, with the majority being tequila. While Diageo believes it can mitigate around 40% of these costs, the geographic origin requirements for tequila prevent the company from fully relocating production outside of Mexico. Jhangiani mentioned that price increases could be a potential strategy to offset the impact of the tariffs, similar to what the company did during the first Trump trade war.
Despite the challenges posed by potential tariffs, Diageo continues to see strong performance for its tequila brands. The company’s earnings report highlighted Nielsen data showing that Don Julio was the top share gainer in the spirits category. Diageo CEO Debra Crew emphasized the company’s focus on what they can control, including investments in their supply chain. Recently, Diageo announced a $415 million investment in a new alcohol plant in Alabama to enhance its presence in the South.
The uncertainty surrounding tariffs on imported products has put alcohol and spirits producers in a difficult position as consumer demand for imported beers and tequila remains high. Diageo, like many other companies, is closely monitoring the situation and exploring strategies to mitigate the potential financial impact of these tariffs.
