Diageo PLC's (LSE:DGE) third-quarter performance benefited from some one-off factors, analysts said, noting that the group's plans to sell off some of its brands could reignite speculation that Guinness could be put on the block.
Organic sales growth of 5.9% in the FTSE 100 group's third quarter benefited a lot from "technical effects", UBS analysts said, but the underlying performance was better than expected.
While the Smirnoff and Johnnie Walker maker expects the current global tariff regime to cost around $150 million annually, it calculated that it will be able to offset around half of this through cost-cutting, with price hikes to help balance the rest.
The main boost to the top line came from North American buyers pulling forward imports to distributors ahead of Donald Trump's tariffs.
However, on an underlying basis sales grew 2%, while UBS noted that the City consensus was for 1.4% for the whole second half.
UBS said that while full-year guidance for sequential improvement has been removed, "but management is taking an assertive approach to drive better earnings visibility through a new cost saving plan and operating model, which we think should ensure operating leverage in a period of weak topline visibility and tariffs."
Analyst at Hargreaves Lansdown said Diageo's "world-class cocktail of brands", including Guinness, Johnny Walker, Gordon's, Baileys, Captain Morgan and Ciroc have helped the FTSE 100 group squeeze through price hikes in all regions except Asia Pacific, which continued to see consumers downtrading to cheaper brands.
They said the tariff offsetting measure will take time to enact, while fourth-quarter sales are expected to see the pull-forward effect reverse and full-year organic operating profits are expected to decline slightly.
"Zooming out, the picture is starting to look a touch better than it has for some time," the HL analysts added. "Sales to China are largely unaffected by tariffs, Latin America and the Caribbean are lapping some weak comparable figures, and there are early signs that the industry is recovering from its cyclical hangover."
UBS said the US tariff impact, including mitigations, was "broadly in line with our expectations", while currency swings are expected to put a slightly larger dent on profits this year at $200 million.
A new savings programme of $500 million was launched, which is aimed to help improve margins and cash flow, while cutting debt.
"Investors were braced for a bad quarter from Diageo yet the drinks giant has managed to pull a rabbit out of the hat," said analysts at AJ Bell.
Diageo's comment that "selective" disposals of some of its brands over the coming years means "we might finally see a sale of Guinness and other beer brands so that Diageo is purely focused on spirits", they added.
"That would make a lot of strategic sense as it could greatly improve group profit margins, meaning the business might trade on a higher multiple of earnings."