Brown-Forman and Diageo Face Profit Risks Amid Potential 200% Tariff on European Spirits
The global liquor industry is bracing for impact as the U.S. and the European Union edge closer to a full-scale trade war on alcoholic beverages. The latest tariff threats, triggered by ongoing disputes over steel and aluminum duties, could significantly disrupt international alcohol markets, affecting major brands such as Jack Daniel’s, Johnnie Walker, and Ketel One.
President Donald Trump has warned of a 200% tariff on European wine, champagne, and spirits if the EU enforces a 50% tariff on American whiskey. The EU’s proposed tariff, set to take effect on April 1, 2025, is a retaliatory measure against new U.S. metal tariffs.
With both sides standing firm, liquor giants such as Brown-Forman (BF-B) and Diageo (DEO) could face significant financial losses if these tariffs are imposed.
How Will the Tariffs Impact Leading Liquor Companies?
🔹 Brown-Forman (BF-B): The Maker of Jack Daniel’s Faces a Potential Hit
- 20% of Brown-Forman’s sales come from the EU and UK, with an 80%/20% split between these two markets.
- A 50% EU tariff on U.S. whiskey could slash earnings by $0.36 per share, according to Evercore analyst Robert Ottenstein.
- The company is also exposed to potential tariffs from Canada and Mexico, which together account for 8% of its sales. A 25% tariff from these regions could further cut earnings by $0.07 per share.
💬 “We are hopeful that the U.S. and EU will reach a constructive resolution before the tariffs take effect on April 1,” a Brown-Forman spokesperson told Yahoo Finance.
Despite these concerns, Brown-Forman shares rose 3.36% in early trading on Tuesday, as investors remain cautiously optimistic about a potential last-minute resolution.
🔹 Diageo (DEO): A 200% Tariff Could Be Devastating
- 9% of Diageo’s U.S. sales come from Scotch whisky, a category that would be directly impacted by new tariffs.
- European-made brands like Ketel One and Tanqueray account for 5% of U.S. sales.
- Ottenstein estimates that a 25% tariff could reduce earnings by $0.04 per share, while a full 200% tariff could slash profits by $0.28 per share.
- Additionally, 45% of Diageo’s U.S. sales come from Canada and Mexico, where potential retaliatory tariffs could further weigh on the company’s bottom line.
Diageo has already faced sales struggles in recent quarters, and a prolonged trade war could worsen its financial outlook.
Beyond Tariffs: Additional Risks for Liquor Companies
Even if tariffs are negotiated or delayed, liquor companies face several headwinds that could impact sales and profitability:
🔸 Consumer Boycotts: Reports from Canada and Europe suggest that consumers are avoiding American-made liquor in response to escalating trade tensions.
🔸 Fragile Pricing Environment: Liquor makers may struggle to pass tariff costs onto consumers without risking significant demand declines.
🔸 Beer Market Resilience: If tariffs push up prices for whiskey, wine, and spirits, beer could become a more affordable alternative, benefiting major brewers like Anheuser-Busch InBev and Molson Coors.
What’s Next? Will a Deal Be Reached Before April 1?
With just weeks remaining before the EU’s whiskey tariffs take effect, negotiations between U.S. and EU trade officials will be critical in determining the future of the liquor industry.
📉 If no deal is reached:
- Brown-Forman, Diageo, and other spirits makers could face higher costs, supply chain disruptions, and declining sales in key markets.
- The broader hospitality industry, including bars, restaurants, and retailers, may struggle to absorb price increases, potentially leading to lower consumer demand.
📈 If a resolution is found:
- Liquor stocks could rally as uncertainty is removed, and companies could avoid major profit losses.
🔎 Investors, business leaders, and policymakers will be closely monitoring trade negotiations in the coming weeks.
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