Diageo’s share price (LON: DGE) has been under significant pressure recently, with today’s 3.6% fall bringing the year-to-date decline to 8.46%, with one month of trading complete.
Zooming out, the company’s shares have been declining for more than 3 years, down 22% over the past 12 months, and 42% since the end of 2021. The weekly chart below highlights what has been a stair stepping down, as bearish sentiment continues to hold.
One of the primary challenges facing Diageo is the tariffs imposed by the United States under President Donald Trump. These tariffs impact imported goods from Mexico, Canada, and China, which are key markets for Diageo’s operations. A 25% tariff is levied on goods from Mexico and Canada, while a 10% tariff applies to products from China.
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In response to these tariffs, Diageo North America is planning to open a new facility in Alabama. This strategic move could help mitigate some of the negative impacts of the tariffs on their business.
Certain products face unique challenges due to geographical limitations. For instance, tequila can only be produced in Mexico, and Canadian whisky must be distilled in Canada. These restrictions impact Diageo brands such as Crown Royal and its premium tequilas, which are subject to the new tariffs as a result.
According to an estimate by Deutsche Bank, the tariffs could potentially reduce Diageo’s earnings per share (EPS) by about 8%. Furthermore, the company had forecasted an annual sales growth rate of 5% to 7% in 2021, which now appears to be optimistic in light of the current challenges.
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