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Drinks

Pernod Ricard Profit Growth Outlook Lags Expectations

By Dayeeta Das
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Pernod Ricard Profit Growth Outlook Lags Expectations

French spirits maker Pernod Ricard has predicted lower than expected profit growth in the current financial year, briefly knocking its shares to a four-month low.

The group, whose brands include Absolut vodka and Jameson whiskey as well as the aniseed liqueur from which it draws its name, saw underlying profit growth from recurring operations of between 5% and 7% for the year ending 30 June 2019, below consensus expectations of 7.4%.

Its shares fell as low as €135, their lowest since April, before recovering to be down 0.3% at €137.95 by 9.47am (GMT) on Wednesday.

Monetary Uncertainties

Pernod, the world's second-biggest spirits group behind Britain's Diageo, said it faced geopolitical and monetary uncertainties as well as pressure from higher costs of commodities such as agave for tequila and grapes for cognac.

For the year ended 30 June 2018, it achieved a 6.3 underlying profit rise, when profits came in at €2.36 billion ($2.7 billion), after strong demand in China and India as well as robust sales in the United States, its top market.

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The outcome was in line with an average forecast of €2.36 billion in an Inquiry Financial poll for ThomsonReuters.

Analysts at Jefferies noted the projection was slightly weaker than had been expected. "Despite the robust results, we expect a muted share reaction," they said in a note, keeping a "hold" rating on the stock.

Forecast

Pernod however predicted a very strong first quarter, saying it would benefit from a low comparison base in India where it has faced setbacks including a ban on liquor outlets.

It also forecast a boost in the July-September period from an earlier Mid-Autumn Festival in China, where it banks on a thirst for premium drinks from a fast-rising middle class.

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Sales growth for the 2017/18 full year accelerated to 6% from 3.6% the previous year, spurred by a 17% jump in China, 14% in India and 4% in the United States.

The recovery of the Absolut vodka brand in the United States, which accounts for 20% of the US business, was however taking longer than expected, with sales still down by around 3% to 4% in value.

Net debt fell by €889 million to €6.96 billion and CEO Alexandre Ricard told a news conference that though the group had the means to do a large acquisition, it did not want to overpay and remained focused on doing smaller bolt-on deals.

 News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
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