Diageo, the maker of Guinness stout and Smirnoff vodka, said Monday it would cut costs to reduce debt, as the British group anticipates a hit from US tariffs of $150 million (£112m).
The announcements from Diageo, whose brands also include Johnnie Walker whisky and Baileys liqueur, were included in an earnings statement that showed total group sales rose nearly 3 per cent to around $4.38 billion in its third quarter.
"We view the near-term industry pressure as largely macro-economic driven, with continued uncertainty impacting both the timing and pace of recovery," Diageo chief executive Debra Crew said in the statement.
The maker of Astral tequila and Captain Morgan rum said it plans cost savings of around $500 million over three years under the first phase of its Accelerate programme.
It leaves the company "well-positioned to deliver sustainable, consistent performance while maximising shareholder returns; even if current trading conditions persist", Crew added.
Cost cuts would come from changes to Diageo's trade investment and advertising spend, overheads and supply chain, finance chief Nik Jhangiani told investors.
The world's largest spirits maker is also expected to dispose of some significant assets, but hold on to its Guinness brand, to help reduce its leverage ratio from 3.1 times net debt to operating profit at end-2024 to between 2.5 and 3 times.
"We see... some opportunities for what I would call substantial changes versus portfolio trimming," Jhangiani said. "It's clearly going to be above and beyond the usual smaller brand disposals you've seen over the last three years."
Crew later told reporters that "nothing has changed" with regards to well-performing beer label Guinness, which Diageo ruled out selling earlier this year.
The cost cuts will help Diageo deliver about $3 billion free cash flow per annum from fiscal 2026, the company said.
The CEO said Diageo would share further detail of Accelerate in its full-year results due in August.
Diageo also revised down its expected hit from US tariffs as the threat of levies on Mexico and Canada receded.
The plan did not include large-scale redundancies, though some changes to headcount through approaches such as slower hiring may be included, Crew said.
Jhangiani joined in September as the company struggled with falling sales and wavering investor confidence.
While "tariffs are likely to cause an annualised hit of some $150 million on profits... the group estimates that its mitigating actions, such as increasing prices, cost control and supply chain management will limit the damage", noted Richard Hunter, head of markets at Interactive Investor.
Diageo's share price was steady Monday on London's benchmark FTSE 100 index, which was down 0.6 per cent overall in late morning deals following the updates.
"You can see that (Diageo) is gradually getting its act together again," said Richard Scrope, manager of the VT Tyndall Global Select fund that holds Diageo stock.
Turning around a "supertanker" like Diageo however, takes time, said Rob Burgeman, investment manager at another Diageo investor RBC Brewin Dolphin.
The company still faces difficult trading conditions in key markets like the US and Europe.
US president Donald Trump's 10 per cent tariff on imports from places like Britain and the European Union will also deal a $150 million hit to Diageo's operating profit per annum, the company estimated.
That is lower than the roughly $200 million it had previously estimated for the second half alone. Since its previous estimate in February, threats of a 25 per cent levy affecting Mexican tequila and Canadian whisky have not materialised.
The company reported a 5.9 per cent rise in third-quarter organic sales, largely thanks to an acceleration in shipments to North America ahead of the imposition of tariffs.
