Diageo, the parent company of Guinness, is anticipating a potential $200 million impact on its operating profits in the upcoming financial quarter starting in March if tariffs on the U.S. and Mexico are imposed next month.
During an earnings call on Tuesday, Nik Jhangiani, the CFO of the spirits producer, revealed that 45% of the company’s net sales in the U.S. are generated from products manufactured in Mexico and Canada, with the majority being tequila.
Although Diageo believes it can offset around 40% of these costs, restrictions on the geographical origin of tequila prevent the company from fully relocating production outside of Mexico. Jhangiani mentioned that Diageo may consider implementing price increases to counter the tariff expenses, a tactic used during the initial Trump trade war.
“While price increases are an option, we have other strategies in place. We will assess the market conditions, competitor responses, and the duration of the tariffs before making any decisions,” Jhangiani explained.
The looming tariff threats have caused anxiety among alcohol and spirits producers, particularly as the demand for imported beers and tequila continues to rise. Diageo reported strong performance for its tequila brands, with Nielsen data indicating that Don Julio was the top gainer in the spirits category.
Debra Crew, the CEO of Diageo, reassured investors that the company is concentrating on factors within its control. As part of its investment strategy, Diageo is enhancing its supply chain by investing $415 million in a new alcohol production facility in Alabama to strengthen its presence in the Southern region.