• Shares drop on sluggish profits
  • Sales momentum strong
  • Asia comes of age
Observers warm to Pernod Ricard results

Observers warm to Pernod Ricard results

Ongoing thirst for key drinks brands has ensured that Pernod Ricard is entering its new fiscal year with some strong sales momentum, but investors are edgy on the firm's bottom line. just-drinks examines the market reaction to the group's full-year numbers.

Standout performances for Martell Cognac in China and Jameson whiskey in the US ensured that Pernod Ricard's sales accelerated towards the end of its fiscal year. Absolut, the firm's biggest brand in volume terms, also returned to solid growth, while The Glenlivet and Chivas Scotch whiskies helped to take attention away from Ballantine's landing in a bunker. Even the Ricard brand, for long the drink of old men in southern France, reported sales growth.

Granted, Mumm Champagne and Jacob's Creek had howlers, but Pernod's sales momentum inspired many analysts and commentators to give the group the benefit of the doubt on a decidedly sticky wicket.

"While its full-year results vindicated its strategy of focusing on premium brands, confounding fears that drinkers would trade down to cheaper tipples during the recession, investors will discern the odd imperfection," wrote Matthew Curtin on the Wall Street Journal's website.

And so it proved for Pernod yesterday (2 September). The firm's share price initially fell by 5% on the Paris Stock Exchange, although the deficit had halved by the day's end. Shares were a further 2% down by midday today, at EUR59.9.

Analyst group Sanford C Bernstein noted that Pernod's progress on cutting debt was a "slight disappointment". The firm shaved EUR1bn off net debt during the year, but this only resulted in a EUR304m reduction in the final accounts due to currency charges. Currency also ate into profits from recurring operations, which slipped by 1% in real terms. Net profits only crept up by 1%, which is below the 2% rise achieved by rival Diageo.

However, Pernod's medium-term prospects overcame short-term disappointment as the day progressed.

Nomura analyst Ian Shackleton was quoted in Forbes as saying that Pernod will benefit as spirits take share off beer in mature markets. Pernod is also ahead of rivals in the key Asia region. "Pernod has the higher potential for growth thanks largely to its 19% Asia exposure, versus 7% for Diageo," Shackleton said.

The Financial Times led with Pernod's growth in Asia over the last 12 months, picking out that the region has become the second biggest contributor to the group's annual sales. Asia also became the second biggest regional contributor to profits over the year.

Meanwhile, the Telegraph newspaper in the UK led with a pick-up in Champagne sales for the firm during recent months. "I don't think there is any room for disappointment," the paper quoted Pernod's CEO, Pierre Pringuet, as saying.

Regional media led with regional successes and failures. The Irish Times unsurprisingly lauded Jameson's international sales leap, while the Sydney Morning Herald led with "Jacob's sales up the creek" and the Herald in Scotland hailed a rebound for Chivas Regal Scotch whisky.

Pernod's profitability may have been less than it had led the market to believe, but most observers think that the company has the momentum to succeed in the year ahead.