May 8, 2018 / 2:39 PM / in 3 months

Tough vodka market weighs on Campari's first-quarter sales

MILAN (Reuters) - A tough market for vodka and weak demand in Brazil hit Campari’s (CPRI.MI) sales in the first quarter although it benefited from the growing popularity of its Aperol liqueur.

FILE PHOTO: A bartender takes a bottle of Campari at Barmaglot bar in Almaty, Kazakhstan June 22, 2017. REUTERS/Shamil Zhumatov/File Photo

Aperol, once a niche product sold mostly in northern Italy, is now the Italian drinks’ group’s best performer, enjoying strong demand in Europe and rising sales in the United States.

The world’s sixth largest spirits company also reported solid sales of its eponymous red bitter, Grand Marnier liqueur and Wild Turkey bourbon. But a difficult market for its SKYY vodka brand globally amid tough competition from New Amsterdam and Tito’s brands in the United States, as well as weak demand in Russia for sparkling wines and Cinzano, meant its total sales rose just 2.2 percent in January-March, excluding forex swings and M&A activity.

That marked a slowdown from a 5.7 percent increase in the same period last year.

Soft demand in Brazil also dented sales of Sagabita cachaca.

“Negative impacts were magnified by a small first quarter, which accounts for only 20 percent of yearly sales,” CEO Bob Kunze-Concewitz told analysts on a post-results conference call on Tuesday.

On a reported basis, first-quarter sales fell 8.2 percent to 336 million euros (295 million pounds), slightly below a Reuters SmartEstimate of 341 million euros.

“Looking into 2018, our outlook remains fairly unchanged and balanced in a still uncertain macroeconomic scenario for some emerging markets,” Kunze-Concewitz said.

The group confirmed its expectation that its gross profit margin would grow by around 60 basis points this year, half the margin expansion seen over the next few years and partly dented by an increase in the prices of agave syrup, a key ingredient for tequila.

“A gross margin expansion of 120 basis points can be considered as a cruise speed for coming years,” Chief Financial Officer Paolo Marchesini told analysts.

Marchesini also underlined a reduction in debt, to 939 million euros from 982 million euros at the end of 2017, which could open the way for new M&A activity in the future.

Shares in the company extended the day’s losses after the results to trade down more than 3 percent but later recovered. The stock was down 0.8 percent by 1300 GMT.

Reporting by Francesca Landini, Maria Pia Quaglia and Agnieszka Flak; Editing by Susan Fenton

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