Pernod Ricard Expects Woes to Persist Despite China Halting Brandy Probe — 2nd Update

By Andrea Figueras

French distiller Pernod Ricard anticipates a soft first quarter after lower sales and earnings in the last fiscal year, though China's decision to pause dumping measures against brandy from the European Union offered a bright spot in a key market.

The company--which houses brands such as Absolut vodka and Ballantine's whisky--said Thursday that it expects sales to return to growth in fiscal 2025, but the first three months would be sluggish, partly due to further inventory destocking in the U.S.

Pernod noted a challenging environment in China, a major market for spirits makers, currently marked by soft consumer sentiment and a slower-than-expected recovery from the pandemic.

While that concern isn't expected to go away, Thursday's decision by the Chinese commerce ministry to halt punitive measures on brandy imported from the EU lifted shares, easing investor worries about the potential impact on sales in a key market.

In afternoon trading in Europe, shares in Pernod Ricard were up 2.9%, after jumping nearly 10% earlier in the session on the China news. French peer Remy Cointreau also benefited from China's decision to hold back on measures, rising as much as around 12% in European midday trading.

"We have always cooperated, in full transparency, with the current investigation and will naturally continue to do so until it has been completed," Chief Executive Alexandre Ricard said in a press conference.

The brandy industry should breathe a sigh of relief after China's decision, AJ Bell investment director Russ Mould said.

"Asia is a big market for spirits and European companies should welcome the latest development as it effectively removes a key sales risk," he said.

The news came as Pernod Ricard reported full fiscal-year results. For the year ended in June, the company booked sales of 11.6 billion euros ($12.90 billion), down 4% in reported terms from a year earlier. Profit from recurring operations decreased 7%, while net profit dropped 35% to 1.48 billion euros.

"Pernod Ricard's results are not stellar, but they align with expectations, leaving some room for optimism," head of equity research at Quilter Cheviot Chris Beckett said in a note.

The CEO said the environment has been characterized by economic and geopolitical uncertainty, as well as the normalization of the spirits market after two years of exceptional growth.

Other spirits companies are also facing tough conditions. After the postpandemic boom in beverage consumption, sales growth returned to more normalized levels, leading to an increase in stocks, particularly in the U.S.

Some analysts are skeptical about Pernod Ricard's ability to reach its midterm goals, which the company confirmed Thursday.

"We believe that this represents an over-optimistic take on the company and category's growth prospects," RBC Capital Markets analysts said in a research note.

In the midterm, Pernod Ricard expects to reach the upper end of its target range of between 4% and 7% growth in net sales, as well as organic operating leverage of 50 to 60 basis points.

The guidance confirmation also raised eyebrows at Barclays.

"It is becoming increasingly optimistic to expect this range to be hit without structural changes to the business," Barclays analysts wrote in a note to clients.

Write to Andrea Figueras at andrea.figueras@wsj.com

(END) Dow Jones Newswires

August 29, 2024 09:12 ET (13:12 GMT)

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