March 5, 2019 / 11:02 AM / 21 days ago

Campari cautious after fourth quarter takes gloss off 2018

MILAN (Reuters) - Emerging markets weakness and higher prices for tequila ingredient agave put a brake on Campari’s sales towards the end of an otherwise strong year for the Italian drinks 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

The slowdown in fourth-quarter sales triggered profit-taking on shares that had climbed more than 40 percent over the past year and touched a record high just before its results.

Campari, whose orange-coloured Aperol liqueur and red bitter Campari are key ingredients for Spritz and Negroni cocktails, posted 2018 sales at 1.71 billion euros (1.5 billion pounds), in line with analyst expectations in a Refinitiv poll.

However, sales for the October to December quarter, excluding currency swings and asset purchases or disposals, grew 2.1 percent compared with 6.6 percent in the first nine months of the year.

The company said it expects business to continue to grow this year despite uncertainty in emerging markets.

Campari shares ended 6.6 percent down at 7.91 euros after touching a record high of 8.57 euros ahead of the results.

Performance in Russia, Brazil and Argentina was bleak, the group said, adding that it was hoping for an improvement this year, at least in the first two countries.

A prolonged increase in the price of agave, which is used to make tequila, also weighed on 2018 results. Agave prices are expected to continue rising in 2019, said finance chief Paolo Marchesini.

Chief Executive Bob Kunze-Concewitz remained positive on the 2019 outlook.

“We have pretty good momentum behind our key brands ... developing markets should do better... but before coming out with any bullish sentiments, we’d like to have at least six months of trading under our belt,” he said in a conference call, adding that the company has turned more selective on M&A activity after a string of recent acquisitions.

Analysts said the company’s valuation has increased so much that it would need a big improvement in expectations to push its shares higher.

“Unfortunately, today’s in-line results may not translate into further upgrades to consensus, which could weigh on shares short term given the strong run in the past 12 months,” Berenberg analyst Gonzalez Javier Lastra said in a note.

Analysts and investors are looking both at sales and margin performance, with Campari promising to improve both during 2019.

In term of products, the beverage group reported a 28 percent increase in Aperol sales, while SKYY vodka was down 8 percent because of continued strong competition in the United States.

The Asian market, which generates only 7.5 percent of Campari’s total sales, could become a new area of expansion for Aperol, the group’s best-selling drink.

“We see Aperol attracting attention in key Asian cities so we are looking to developing the brand because it is really nowhere there at this stage,” Kunze-Concewitz said.

Reporting by Francesca Landini; Editing by David Goodman

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