LONDON (ShareCast) - (Sharecast News) - Drinks giant Diageo reiterated guidance for full-year organic sales and operating profits after a solid pickup in underlying growth in the third quarter, but announced that trade tariffs would hit the business by $150m.
Organic net sales increased by 5.9% in the three months to 31 March, compared with a 1.0% increase in the first half, though this was mainly a result of "significant phasing benefits" which contributed around 4% to third-quarter growth. However, these benefits are expected to reverse in the fourth quarter.

All regions delivered positive price/mix except the Asia Pacific region where continued "consumer downtrading" and adverse market mix impacted net sales, the Johnnie Walker and Guinness maker said.

Diageo also gave its first financial estimate of the impact of tariffs on its business, calculating a $150m hit on an annualised basis before any mitigation measures.

This estimate assumes the current 10% tariff remains on both UK and European imports into the US, that Mexican and Canadian spirits imports into the US remain exempt under US-Mexico-Canada Agreement, and that there are no other changes to tariffs.

"We expect that given the actions that we have in place already, before any pricing, we will be able to mitigate around half of this impact on operating profit on an ongoing basis. Looking ahead, we will continue to work on measures to mitigate this impact further," the company said.

Diageo also announced the first phase of its Accelerate cash delivery and operational improvement programme, which it said will move the company to a more agile global operating model.

As part of the plan, the company expects to deliver around $3bn free cash flow per annum from next year, and $500m in cost savings over three years, along with deleveraging the balance sheet.

"We continue to believe in the attractive long-term fundamentals of our industry and in our ability to outperform the market. We view the near-term industry pressure as largely macro-economic driven, with continued uncertainty impacting both the timing and pace of recovery," said chief executive Debra Crew.

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