By Andrea Figueras
Pernod Ricard expects higher operating profit in fiscal 2024 despite cutting sales guidance, with price hikes hitting volumes but protecting profitability.
The French distiller on Thursday said it now expects broadly stable organic net sales in the year ending in June, while it previously anticipated broad-based and diversified organic net sales growth.
Nevertheless, Pernod Ricard stuck to its target of an expansion in operating margin, and said this should result in organic operating profit growth in the low single percentage digit range.
After positive trends during the pandemic, drinks makers are grappling with a more normalized growth environment, leading to high inventories particularly in the U.S. Some spirits companies recently turned more cautious on their outlook as consumer spending felt the effects of price increases.
Constellation Brands last month lowered its earnings outlook for the fiscal year ending in February, while Remy Cointreau forecast a sales decline for the year ending in March at the steeper end of its previous guidance. Meanwhile, Diageo anticipated improvement at its top and bottom lines in the half year to June compared with trends in the prior six months.
Analysts at UBS said in a research note that Pernod Ricard’s better profit margins offset the downgrade to its sales forecasts, which should come as a relieve for investors.
At 1209 GMT, Pernod Ricard shares were up 2.7% at EUR158.95, having earlier risen as much as 6%.
Pernod Ricard said it expects price increases to be around mid-single digits in the second half, moderating from high-single digits in the first half.
The maker of Absolut vodka and Martell cognac booked sales of 6.59 billion euros ($7.07 billion) for the six months to Dec. 31, an organic decline of 3% compared with the year-ago period, but in line with analysts’ expectations according to Visible Alpha consensus.
Sales in the Americas declined by 7% due to a weak performance in Canada and high stock levels in the U.S.
In Asia and rest-of-the-world region, Pernod Ricard saw a 1% increase in sales, though a poor performance in China led to a 9% drop in sales.
The company said the decline in China was due to a softened consumer demand in a challenging macroeconomic environment. However, it didn’t mention effects regarding the anti-dumping investigation that the Chinese government launched in January on brandy imported from the European Union, which was seen as a potential hit to the performance of drinks makers.
Net profit slipped to EUR1.57 billion from EUR1.79 billion previously, ahead of analysts’ projections of EUR1.45 billion, according to a Visible Alpha poll of estimates.
“We delivered a robust performance in the first half of the year, as we confidently steer Pernod Ricard through the normalization of the spirits market, following two years of outstanding growth,” Chairman and Chief Executive Alexandre Ricard said.
Pernod Ricard plans to buy back shares valued at EUR300 million for the year, with around half of that volume completed in the first half. It previously said buybacks would amount to between EUR500 million and EUR800 million.
Despite its lowered 2024 sales view, the company backed its medium-term financial targets, including reaching the upper end of between 4% and 7% of net sales growth and organic operating leverage of 50 to 60 basis points.
Write to Andrea Figueras at [email protected]
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