February 8, 2018 / 6:41 AM / a year ago

Strong China spirits sales inspire Pernod Ricard to raise profit goals

PARIS (Reuters) - Pernod Ricard (PERP.PA) raised its annual profit growth outlook and delivered a forecast-beating rise in first-half earnings on Thursday, crediting strong sales in China driven by demand for its Martell cognac and Chivas whisky.

FILE PHOTO: A logo of the Pastis 51 brand by French drinks maker Pernod Ricard group is seen at the " Club Pernod" in Marseille, France, April 27, 2016. REUTERS/Jean-Paul Pelissier/File Photo

Pernod, the world’s second-biggest spirits group behind Britain’s Diageo (DGE.L), said the raised forecast reflected its confidence over its prospects, particularly in China, where drinks consumption typically rises during New Year festivities starting on Feb. 16.

“The fact that we raised our guidance at this point of the year reflects our confidence. The Chinese New Year starts in a week’s time. We are clearly confident,” Chief Executive Alexandre Ricard told analysts.

“Our vision of mid to high single-digit growth in China is now a reality,” added Ricard.

First-half sales and profit both beat analyst forecasts, and Pernod shares were up 2.3 percent in mid-session trading.

Sales of Swedish Absolut vodka fell 3 percent in the United States, amid tough price competition in the group’s top market, but rose elsewhere.

To boost sales, Absolut has launched a global advertising campaign where Swedish staff appear naked in a film to emphasise the brand’s transparency: “Absolut. The vodka with nothing to hide”.

As a humorous touch, Ricard himself appeared bare-chested at his desk in an internal video sent to staff to introduce the new Absolut film campaign, a company spokesman said.

The French group is now targeting an organic rise of between 4 percent and 6 percent in profit from recurring operations for the year ending June 30, 2018. That compared to a previous forecast for 3-5 percent growth, based on constant exchange rates.


Nevertheless, Pernod warned of the impact from a rise in the euro, as did its rival Remy Cointreau (RCOP.PA) last month.

Pernod, which also owns Mumm champagne, said the euro’s rise against the dollar would knock 180 million euros ($221 million) off annual operating profit, more than the 125 million euro impact previously forecast.

First-half sales reached 5.082 billion euros, an organic rise of 5.1 percent, while profit from recurring operations was 1.496 billion euros, an organic rise of 5.7 percent.

“The only fly in the ointment is the forex headwind. That will limit scope for absolute upgrades but nevertheless these are strong numbers,” said Mirabaud research analysts in a note.

Pernod said it had achieved good sales growth in both India and China, with strong demand for Martell cognac and Chivas whisky in the Chinese market.

In the United States, sales rose 3 percent with Jameson Irish Whiskey continuing its strong growth.

Pernod Ricard trades at 21.2 times estimated 12-month forward earnings against 20.8 times for Diageo and 21.1 for the beverage sector average.

Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Adrian Croft

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