By Andrea Figueras

Diageo is scheduled to report results for the first half of its fiscal year 2025 on Tuesday. Here is what you need to know.

SALES FORECAST: The U.K. spirits maker is expected to report sales of $10.72 billion, with organic growth of 0.4%, according to a company-compiled poll of 19 analyst estimates. In the prior-year period, the maker of Johnnie Walker scotch whisky, Guinness stout and Smirnoff vodka posted sales of $10.96 billion.

OPERATING PROFIT FORECAST: Analysts forecast operating profit of $3.31 billion for the six months to December, down from $3.32 billion previously, according to the same consensus.

Shares have plunged more than 20% over the past 12 months and are down around 7.9% since the start of the year.

WHAT TO WATCH

--U.S. TARIFFS: The focus will be on any comments around the impact of duties in the U.S., given the Trump administration's plans for 25% tariffs on imports from Canada and Mexico. Almost half of Diageo's sales in the U.S. are products imported from Mexico and Canada, including brands Crown Royal, Don Julio and Casamigos, according to estimates from analysts at Jefferies. Diageo is delivering strong growth in tequila led by Don Julio Reposado, and in Canadian whisky led by Crown Royal Blackberry, which could give it some relative pricing power to partially offset the impact of levies, UBS analysts said in a note. The U.S. is the most important market for the major spirits companies, accounting for around 20% to 35% of net sales, UBS said. Between 70% and 100% of U.S. sales are of imported products, UBS analysts added.

--WARNINGS IN THE U.S.: In addition to tariffs, beverage companies also face the implications of calls from the U.S. Surgeon General for warnings about the health impacts of alcohol consumption and a cooling in the once-red-hot tequila market, where Don Julio and Casamigos are Diageo's leading brands, AJ Bell analysts said. The U.S. Surgeon General in January said alcohol was a well-established, preventable cause of cancer responsible for about 100,000 cases of cancer and 20,000 cancer deaths annually in the U.S.

--SUBDUED DEMAND FOR ALCOHOL: After the surge in alcohol consumption during the pandemic, the industry faces concerns over a wider slowdown in demand, which led to high inventories, especially in the U.S. A profit warning from Modelo Especial brewer Constellation Brands back in January has left analysts on alert, AJ Bell analysts said. There has been cooling in the once-red-hot tequila market, where Don Julio and Casamigos are Diageo's leading brands. The owner of the Casa Noble tequila brands lowered sales growth estimates for beer and wine and spirits, citing subdued overall demand for alcohol.

--MEDIUM-TERM TARGETS: Some analysts have begun to question whether Diageo will revisit and downgrade its medium-term targets, AJ Bell analysts said. The company currently anticipates organic net sales growth from 5% to 7% and for organic operating profit to grow broadly in line with sales. RBC Capital Markets analysts expect management to abandon the guidance and take a more assertive approach to cost control, including marketing, where the group has spent in too uncontrolled a manner. The company could cut the organic net sales growth outlook to between 4% and 6%, according to Citi analysts.

Write to Andrea Figueras at andrea.figueras@wsj.com

(END) Dow Jones Newswires

February 03, 2025 11:05 ET (16:05 GMT)

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