(Reuters) - Diageo (DEO), the world's biggest spirits maker, plans to save $500 million in costs by 2028 following years of sales declines, it said on Monday, and revised down its expected hit from U.S. tariffs as the threat of levies on Mexico and Canada receded.

The plan will help the maker of Johnnie Walker whisky and Guinness beer deliver about $3 billion free cash flow per annum from fiscal 2026 and reduce debt, CEO Debra Crew said in a trading statement.

The cost cuts would be supported by "appropriate and selective disposals" over the coming years, the company said in the statement. It did not give further detail.

"It will also ensure that we are well-positioned to deliver sustainable, consistent performance while maximising shareholder returns; even if current trading conditions persist," Crew said.

Diageo's shares rose over 2% in early trade, with analysts saying the company's focus on costs and cash was welcome.

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The plan follows the appointment of new finance chief Nik Jhangiani, who joined in September as the company struggled with falling sales and wavering investor confidence.

The cost-saving plan would bring down Diageo's leverage ratio and would likely be taken well by investors "given the clear focus on self-help measures in the uncertain wider backdrop", Fintan Ryan, analyst at Goodbody stockbrokers said in a note.

The spirits industry was already struggling with a sharp drop in sales amid high interest rates and inflation when U.S. President Donald Trump announced sweeping tariff plans that threatened to upend sales further.

Diageo said it now expects a $150 million annualised hit from the duties, lower than the roughly $200 million it had estimated in February, after threats of a 25% levy affecting Mexican tequila and Canadian whisky did not materialise.

Diageo generates around 45% of sales in the United States from products that must be made in either Mexico or Canada.

Currently, it is affected by a 10% levy on imports from places like Britain and the European Union.

The company reported a 5.9% rise in third-quarter organic sales, and affirmed its full-year forecast.

It said growth benefited from an acceleration in shipments to North America ahead of the imposition of tariffs, and expects this effect to reverse in the fourth quarter.

(Reporting by Shashwat Awasthi and Emma Rumney; Editing by Sherry Jacob-Phillips and Emelia Sithole-Matarise) Sign up for the Yahoo Finance Morning Brief Subscribe

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