October 29, 2019 / 10:40 AM / 17 days ago

Campari could swallow part of U.S. tariff pain

MILAN (Reuters) - Italian spirits group Campari (CPRI.MI) will not shift production of some of its liqueurs in response to U.S. trade tariffs on some European beverages, it said on Tuesday after reporting better than expected quarterly sales growth.

FILE PHOTO: A woman drinks a spritz cocktail with Aperol at the "Spirit de Milan" in Milan, Italy, May 19, 2018. REUTERS/Stefano Rellandini/File Photo

The company could instead adjust prices for U.S. customers and swallow a small hit to its bottom line, Chief Executive Bob Kunze-Concewitz said in a conference call on Tuesday’s results.

European wine and spirits have been hit since Oct. 18 by duties intended by U.S. President Donald Trump’s administration as punishment for EU aircraft subsidies.

The tariffs, approved by the World Trade Organization, target the company’s best-selling aperitif Aperol as well as Campari and other Italian liqueurs in its portfolio.

“If tariffs stay at the level where they are, we are not delocalising production,” Kunze-Concewitz told analysts, adding that an adjustment to prices is possible.

Campari finance chief Paolo Marchesini said the group expects a 5 million euro ($5.6 million) hit to 2020 earnings before interest and tax (EBIT) as a consequence of duties.

The United States has become Campari’s biggest market in recent years, accounting for 28% of total sales.

Rival Pernod Ricard (PERP.PA) recently said it was considering raising prices on some of its beverages to counter duties.

The Milan group’s third-quarter organic sales growth, stripping out currency swings and asset sales or acquisitions, was 4.9% thanks in part to a 21.5% jump in Aperol sales, with the aperitif performing particularly well in the United States.

Over the first nine months of the year Campari’s EBIT margin improved to 22.1% from 21.6% in the same period last year.

The group said it expects the positive momentum to be reflected over the full year but sounded a note of caution over the closely watched profitability metric.

A continued rise in the price of tequila ingredient agave and higher marketing costs could limit improvement in profitability, it said.

The company sees a potential erosion in EBIT margin in the final quarter of this year but still expects it to improve by roughly 30 basis points in the whole 2019, CFO Marchesini said.

Shares in the group closed 1.8% up, having climbed as much as 3% after the results announcement.

Editing by David Holmes and David Goodman

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