Diageo plc ( DEO ) shares are trading lower on Monday after the company reported a third-quarter fiscal 2025 trading update that showed steady growth in organic net sales and progress on its operational transformation efforts.

The maker of Smirnoff and Guinness posted $4.4 billion in net sales for the quarter ended March 31, marking a 2.9% increase year-over-year. Organic net sales rose 5.9%, driven by stronger pricing and shipment volumes.

The company’s performance in the third quarter benefited from favorable phasing, which is estimated to have contributed approximately 4% to the group’s organic net sales growth. This positive impact was primarily observed in North America, with a lesser contribution from the Latin America and Caribbean region. It is anticipated that this favorable phasing will reverse in the fourth quarter.

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Diageo ( DEO ) reported a 6% organic net sales growth in North America, primarily driven by strong shipment growth in U.S. Spirits. While U.S. Spirits experienced strong shipment growth, Diageo ( DEO ) noted that the overall U.S. Spirits category was softer.

U.S. Spirits organic net sales were up 7%. The gain was supported by restocking and import pull-forwards in anticipation of new tariffs.

Latin America and the Caribbean delivered a 29% organic sales jump, rebounding from last year’s inventory correction and buoyed by improved consumer sentiment in Brazil and Mexico.

In contrast, Europe saw flat growth as solid momentum in Guinness was offset by continued softness in spirits. Asia Pacific posted modest gains, mainly due to easier year-ago comparisons, while Africa recorded 10% organic growth, fueled by strong demand in East Africa and Ghana.

Chief Executive Debra Crew said the company is “on track” to meet its fiscal 2025 outlook despite macroeconomic uncertainty and new tariffs on U.K. and EU imports into the U.S. Diageo ( DEO ) expects the total impact of these tariffs to reach approximately $150 million annually, though it aims to mitigate roughly half of that through cost controls and pricing strategies.

As part of its newly launched “Accelerate” initiative, Diageo ( DEO ) plans to generate approximately $3 billion in free cash flow annually starting in fiscal 2026. The program also includes a $500 million cost reduction plan over three years and targets a reduction in leverage to 2.5–3.0x net debt to EBITDA by fiscal 2028.

Diageo ( DEO ) reaffirmed its fiscal 2025 guidance for the full year, expecting a sequential improvement in organic net sales growth during the second half. However, it anticipates a slight decline in organic operating profit year-over-year, in line with the first half, due in part to ongoing tariff pressures.

Capital expenditures for the year are expected to be near the upper end of the $1.3 to $1.5 billion range, and the company projects a slightly lower effective interest rate than the 4.3% recorded in fiscal 2024. The full-year results will also introduce a revised tax reporting method.

Related ETFs: Consumer Staples Select Sector SPDR Fund ( XLP ) , iShares Global Consumer Staples ETF ( KXI ) .

Price Action: DEO shares are trading lower by 1.02% to $113.88 at last check Monday.

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