Star Metro - Tequila maker Diageo axes sales target on Trump tariffs

The British group, whose brands include also Smirnoff vodka, Baileys liqueur and Captain Morgan rum, has in recent times been impacted by inflation-suffering consumers swapping its premium brands for cheaper beverages.

In an update Tuesday, Diageo said that "given the current macroeconomic and geopolitical uncertainty in many" key markets, a medium-term guidance for organic net sales growth of between five to seven percent had been axed.

Trump's moves to slap levies on imports from Canada, China and Mexico -- while threatening to do the same across Europe -- adds "complexity in our ability to provide updated forward guidance", Diageo chief executive Debra Crew said in a statement that revealed a fall in first-half net profit.

She added that Diageo is engaging with the Trump administration on the broader impact that the tariffs "will have on everyone supporting the US hospitality industry".

Trump on Monday delayed the start of tariffs on Mexico and Canada for a month -- but China remained in the firing line for levies that are putting the global economy on edge.

China retaliated Tuesday, announcing that it would impose tariffs on imports of US energy, vehicles and equipment.

Diageo said the tariffs would hit its tequila portfolio, given it must be made in Mexico, as well as Canadian whisky.

The group produces Canadian whisky Crown Royal, as well as tequila brands Don Julio and Casamigos, which was founded by US actor George Clooney.

It added Tuesday that group net profit slid 12 percent to $1.9 billion in its first half, or six months to the end of December.

Sales dipped one percent to $10.9 billion compared with one year earlier.

- Shares sink -

"These are testing times for Diageo, and the immediate challenges are leading to a glass half-empty outlook," noted Richard Hunter, head of markets at Interactive Investor.

"Although the (Trump) rhetoric may have been temporarily dialled back, the fact that Diageo imports an estimated 40 percent of its products for sale in the US from Mexico and Canada is a significant overhang."

Hunter said the company would likely need to hike prices "at a time when discretionary spend generally has been under some pressure".

Shares in Diageo slid 3.9 percent following the latest earnings update on London's benchmark FTSE 100 index, which was 0.3-percent lower overall in morning deals.

Diageo made no comment on reports it could either sell or spin off the Guinness brand.

A.Harris--SMC