July 30, 2019 / 9:42 AM / 4 months ago

Aperol expansion helps to pep up Campari sales

MILAN (Reuters) - The popularity of orange aperitif Aperol and a jump in demand for tequila brand Espolon helped Campari (CPRI.MI) to report better than expected sales growth in the second quarter, boosting shares in the Italian spirits group.

FILE PHOTO: A bottle of Campari and and a bottle of Aperol are is seen in a window of "The Camparino" bar historically known as the bar of the Campari brand downtown Milan, February 29, 2016. REUTERS/Stefano Rellandini/File Photo

The Milan-based company said that sales rose 6.9% in the last three months on an organic basis, stripping out currency swings and any acquisitions or asset sales.

Analysts were expecting organic sales growth of less than 5% in the second quarter after a strong start to the year, with some of them pointing to a possible upgrade for the company’s outlook on the back of Tuesday’s results.

“We believe this strong set of figures will bring relief to those investors concerned with Campari’s valuation level,” said Javier Gonzalez Lastra of Berenberg in a report.

“We believe consensus could see upgrades of around 2% to full-year 2019 earning per share (EPS) forecasts,” he added. Berenberg rates the stock as a “Buy”.

Shares in the beverage group rose more than 5 percent as the market welcomed the results. At 1315 GMT the stock was up 1.2% to 8.56 euros after having hit a session high of 8.94 euros. They are up around 20% since the start of the year.

Diageo (DGE.L), the world’s largest spirits company, last week reported higher annual profit, helped by growth across all its markets and the popularity of its “Game of Thrones” inspired scotch.

THIRST FOR APEROL

Once a niche product sold mostly in northern Italy to make the Spritz cocktail, Aperol has become one of the group’s best sellers as aperitifs and cocktails have become more fashionable with younger drinkers.

Sales of Aperol, which accounts for one fifth of the group’s total revenue, grew 19.5% on organic basis in the second quarter, with strong demand in Europe and the United States.

Aperol is increasingly being consumed with meals as well as an aperitif in Europe, the group said in its presentation.

Revenue for tequila Espolon jumped 63.5% in the second quarter, with demand especially strong in the United States.

Increasing prices of agave, which is used to make tequila, had a negative effect on profitability and are expected to continue to weigh on margins in the second half.

“We expect agave price to become neutral in full-year 2020 and to fall dramatically in the following years,” said Campari CFO Paolo Marchesini in a conference call with analysts.

Adjusted earnings before interest and taxes (EBIT) rose to 180.3 million euros (165.09 million pounds) in the first half, equal to 21.3% of sales, marking a margin improvement compared with the same period last year.

FILE PHOTO: Campari bottles are seen in a bar downtown Milan, Italy, September 4, 2018. Picture taken September 4, 2018. REUTERS/Stefano Rellandini/File Photo

The margin improvement at EBIT level, a key measure of profitability, is expected to be small in the whole 2019, Marchesini said during the conference call.

The second quarter saw a strong sales performance in the United States, where Campari sells mainly high-margin products.

This was a positive development in comparison with the first quarter when sales growth was more focused on emerging markets, which are lower-margin for the group.

Reporting by Francesca Landini; Editing by Keith Weir

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