Diageo’s net cash flow from operating activities increased by $0.2 billion to $2.3 billion, and its free cash flow increased by $0.1 billion to $1.7 billion.

Diageo has retracted its medium-term guidance of 5% to 7% organic sales growth, with the drinks giant attributing the current macroeconomic and geopolitical uncertainty in many of its key markets impacting the pace of recovery.

In its 2025 interim results report, which covers the half year ended December 31 2024, Diageo said it remains confident of favourable industry fundamentals and its ability to outperform, promising more consistent near-term guidance instead.

Diageo’s reported net sales of $10.9bn declined 0.6%, partially offset by an increase in organic net sales, and reported operating profit declined 4.9%.

Its reported operating profit margin declined 132 bps, which the business attributed primarily due to unfavourable foreign exchange and a decline in organic operating margin, while organic operating profit declined by $42m (1.2%).

Diageo’s organic operating margin declined 69 bps primarily due to continued investment primarily in overheads, partially offset by reduced marketing spend and positive gross margin expansion.

Diageo grew or held total market share in 65% of total net sales value in measured markets, including in the US.

EPS (Earnings Per Share) pre-exceptionals declined 9.6% to $97.7c largely due to a significantly lower Moët Hennessy contribution and unfavourable foreign exchange.

Challenges ahead

Despite a challenging environment, namely the imposition of US tariffs on Mexico and Canada, as well as similar tariffs placed on the import of European brandy by the Chinese Government, and calls for health warnings on alcohol from the US Surgeon General, Diageo improved organic sales in the first half of the fiscal year, increasing $101 million or 1.0%, driven by positive price/mix of 1.2pps, partially offset by a 0.2% volume decline.

Debra Crew, Chief Executive, said: “Our fiscal 25 first half results marked a return to growth, delivering organic net sales growth of 1% despite a challenging industry backdrop as consumers continue to navigate through inflationary pressures. Growth in four of our five regions was supported by market share gains.”

Diageo recorded a strong turnaround in LATAM and Africa, with organic net sales growing 5% and 8.9% respectively. With reference to its Africa operations, Diageo recently sold its 80.4% shareholding stake in Guinness Ghana Breweries plc to Castel Group, retaining ownership of the Guinness brand, and other Diageo brands currently produced by Guinness Ghana, which will be licensed to Guinness Ghana under a new long-term license and royalty agreement.

Crew continued: “Notably, in North America, we outperformed the market with high quality share growth and positive organic net sales growth, driven by strong execution and momentum in Don Julio and Crown Royal. I’m also particularly proud of the performance of our iconic Guinness brand, which delivered double-digit growth for an eighth consecutive half, supported by brand building expertise, innovation and growing global momentum.

While the pace of recovery has been slower in several key markets, we remain confident of favourable long-term industry fundamentals and more importantly in our ability to outperform the market. Spirits remains an attractive sector with a long runway for growth, as we expect to continue to gain share within Total Beverage Alcohol (TBA).”

Tariff trouble

45% of Diageo’s US sales comprise agave-based spirits and Canadian whisky, and though the 25% tariffs on goods imported into the US from Mexico have been put on ice for a month (as of February 3 2025) they still apply to Canada.

These tariffs have been applicable from 4 February 2025, and both the Prime Minister of Canada and President of Mexico have stated that they would impose retaliatory tariffs on US products. In response, the US Executive Orders further stated that any reactive tariffs would attract further retaliatory tariffs.

In a statement, the drinks conglomerate noted: “Diageo starts from a position of strength with a broad global portfolio across categories and geographies, and has demonstrated agility in navigating tariffs on input costs in the past. However, in the US, our largest market, the products which would be impacted by the tariffs would mainly be our tequila portfolio, which given geographic origin requirements must be made in Mexico, and also Canadian whisky.

Tequila organic net sales were up 21% on the half year, while Guinness recorded its fourth consecutive year of double-digit growth.

We have undertaken considerable contingency planning over the last few months focused on what we can control. Given our extensive supply chain and broad and advantaged portfolio, there are a number of possible actions to help mitigate the potential impact including pricing and promotion management, inventory management, supply chain optimisation and re-allocation of investments.”

Crew added: “Our investments in digital capabilities, supply chain, and our transformational route-to-market changes will all be supportive in driving long term sustainable growth, and I am pleased that we are already seeing early benefits from changes in our US route-to-market transformation. Diageo has anticipated and planned for a number of potential scenarios regarding tariffs in recent months. The confirmation at the weekend of the implementation of tariffs in the US, whilst anticipated, could very well impact this building momentum.

It also adds further complexity in our ability to provide updated forward guidance given this is a new and dynamic situation. We are taking a number of actions to mitigate the impact and disruption to our business that tariffs may cause, and we will also continue to engage with the US administration on the broader impact that this will have on everyone supporting the US hospitality industry, including consumers, employees, distributors, restaurants, bars and other retail outlets.”

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