Will "slow but steady" win the race for Pernod Ricard in the US? - Analysis
Pernod Ricard's Jameson brand grew to 5.7m cases in fiscal-16
In its full-year results, released yesterday, Pernod Ricard posted a slight increase in sales, up 1% to EUR8.68bn (US$7.46bn), while net profits appeared to soar - up 43% on fiscal-2015 to a historical high of EUR1.25bn. However, the company was cycling a EUR404m impairment charge for its Absolut vodka brand.
This time last year, "lower growth in the US" drove the company to take the write-down on Absolut, while overall sales in the country were flat. Fast-forward 12 months and overall sales in the US are up by 4%.
In analyst notes that followed yesterday's figures, the mood appeared cautiously upbeat. Bernstein's Trevor Stirling said there was overall "evidence of slow but steady improvement". He points out, however, that the company is trading at "close to all-time lows relative to the sector".
"Pernod Ricard is trading at similar levels of relative discount compared to the aftermath of the debt-laden Absolut deal," he says. "This looks excessive."
The analyst went on to say that the Paris-headquartered firm seems to be turning a corner on its recovery path.
"The US spirits market continues to deliver strong results – in particular, Cognac appears to be accelerating," he says. "Pernod is outpacing the wider US market for the first time in several years."
Elsewhere, in the US, Stirling and Societe Generale analyst Laurence Whyatt both single out Jameson's performance - indeed, Whyatt believes the brand's success is "far from over". In overall results, the brand saw organic sales growth of 16% and volumes growth of 12% to 5.7m cases. In the US, Whyatt says continued repurchase, new drinkers and line extensions such as Caskmates and the Deconstructed Series will help propel growth for the Irish whiskey market leader.
There is even good news for Absolut in its historically-troubled US battleground. Whyatt expects the brand to return to growth in fiscal-2017, "driven by the new branding expected to emphasise the quality and heritage of the product". He also says the latest Facebook data shows the Swedish vodka brand to be "consistently outperforming Smirnoff".
In the company's results presentation, Pernod pointed to further initiatives to strengthen the US market. From July - the start of the new fiscal year - the company has highlighted a stronger focus and streamlined process on innovation, a new internal marketing organisation structured around consumer demand and a new internal commercial organisation.
Relative to Diageo, which has long enjoyed the fruits of its US endeavours, Pernod may have been slow to join in in the country. Could the tortoise finally be catching the hare?
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