BNPP Exane view
The main incremental point of note from the conference call was quantification of the gross (pre-mitigation) potential impact of US tariffs on Canada and Mexico of c.USD200m on Diageo EBIT in the 4 months of FY25 (from 1 Mar). Diageo''s scenario planning suggests they could mitigate c.40% prior to pricing. We estimate this points to a potential annualised impact of c.6% of group EBIT (post cost mitigation, but prior to pricing offsets). While the comments on the tariff appeared to drive some enthusiasm for the shares, we view the rally as a touch generous (shares are now down c.-1%) given that consensus earnings are likely to be subject to c.3% downgrades before any tariff impact and potentially closer to high-single digits in FY26 if tariffs are confirmed.
Highlights: QandA
. H2 LFL sales: pleased to be back into LFL growth in H1 and in 4/5 regions. The outlook in Apac is expected to be tougher from a macro perspective but everywhere have seen strong momentum, particularly for Guinness. Africa is seeing really good growth, and the asset light strategy is paying off with sales in Nigeria strong straight away after the improved distribution. North America is expected to continue to show improvement and Crown Royal Blackberry only came in halfway through H2 last year and now expect to make Blackberry permanent.
. H2 LFL EBIT: investments in the US (such as the one announced in Alabama) will not start to come through until FY26. Also lapping incentives in H2 (as per H1), if you excluded this (which is a one-off) would have been slightly ahead. Latam has an easier comp in H2 and some retailer destocking in North America in H2.
. US spirits: between depletions and sell-out running at within a point of each other. Depletions are running pretty close to NABCA/ Nielsen on a brand-by-brand level. Retailers remains a little cautious but would not describe this as de-stock and Diageo remains very comfortable with its trade inventory levels.
....
