Diageo PLC (LSE:DGE) may breathe a little easier following President Trump’s sweeping new US tariffs.
According to UBS, the impact on the UK drinks giant is expected to be manageable - a hit of around 2% to group profits if it absorbs all costs from the 10% UK tariff, 20% EU tariff and 10% on rest-of-world imports.
That's far less severe than earlier fears of a 25% blanket tariff. Most of Diageo’s US spirits sales - nearly a third of group revenues - are from imports, but a large chunk comes from Mexico and Canada, which are exempt under the USMCA trade deal.
Elsewhere in the European drinks sector, the picture is more mixed. Campari faces a potential 6% profit hit if it doesn’t pass costs on, with just under half its US portfolio subject to tariffs.
Remy Cointreau, which leans heavily on European Cognac exports, looks most exposed, with UBS estimating a 12% dent in earnings unless it can push through a 4% price increase.
Pernod Ricard and Heineken could see 3% and 1.3% profit hits respectively, though both have already factored some of the risk into their guidance. Overall, UBS says the tariffs land softer than feared, especially with USMCA exemptions removing a major overhang.
But that doesn’t mean smooth sailing. Pricing across premium spirits categories in the US is already fragile.
Cognac and Tequila prices are slipping as brands jostle for market share, and even big names like Hennessy have had to reset pricing. With inflation and consumer sentiment under pressure, raising prices to offset tariffs could be tough.
Diageo, with its broader portfolio and sourcing diversification, looks best placed to weather the storm. But with super-premium spirits losing momentum and pricing rolling over, all players face an uphill task protecting margins in the months ahead.
The shares heaved a small sigh of relief, rising 2% to 2,089p.