August 31, 2017 / 9:53 AM / in a year

UPDATE 1-Strong euro hurts Pernod profits, shares fall

(Recasts with outlook, share move)

PARIS, Aug 31 (Reuters) - Spirits group Pernod Ricard reported a smaller-than-expected rise in annual operating profit on Thursday, hit by a stronger euro, which it said would continue to weigh on results.

Shares in the maker of Mumm champagne and Martell cognac fell as much as 4 percent to a 4-month low after the French company said it would take a 125 million euro ($149 million) hit to operating profit in its new financial year if current exchange rates persist, more than some analysts had expected.

Investec said this, and the company’s forecast for a tax rate of 26 percent this fiscal year, were likely to reduce analysts’ 2017-2018 consensus profit forecast by 3 to 4 percent.

“The recent strength of the euro has been unhelpful,” said Mirabaud analyst Jonathan Fyfe.

Pernod forecast underlying operating profit would rise 3 to 5 percent in the year to June 2018, underpinned by strong Chinese demand for Martell cognac, robust growth in its top U.S. market and improving sales in India.

That is roughly in line with analysts’ expectations for growth of 4.2 percent and likely to mark an acceleration from the 3.3 percent rise in profit from recurring operations it reported for the year just ended.

For that year, profits came in at 2.39 billion euros, slightly below the average of 2.42 billion in an Inquiry Financial poll for ThomsonReuters, although towards the top end of the company’s growth guidance range of 2 to 4 percent.

Cost cuts, robust U.S. sales and stronger demand in China offset weakness in India, said the world’s second-biggest spirits group behind Britain’s Diageo.

It handed investors a 7 percent dividend increase.

In May, Pernod cautioned a ban on alcohol sales near Indian highways would slow growth in its second-largest market.

India, which accounts for about 10 percent of group revenue, has been a key growth area, driven by local whisky brands such as Blender’s Pride and Royal Stag.

Pernod said on Thursday it expected sales growth in India to improve from the second quarter of its new fiscal year, having slowed to 1 percent in the one just ended from 12 percent the year before.

At 0940 GMT, its shares were down 3 percent at 113.45 euros, off an earlier low of 112.10 euros.

$1 = 0.8420 euros Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Mark Potter

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