Update - Pernod Ricard's bold spirit bodes well - analysts
- Group surprises with early FY guidance
- Sales outpace Diageo
- Analysts see benefits for global spirits sector
Pernod Ricard's big brands perform in Q1
Analysts believe that Pernod Ricard's unusually bold guidance on full-year profits growth is a significant vote of confidence in the global spirits sector's powers of recovery.
Pernod Ricard's CEO, Pierre Pringuet, said today (21 October) that his firm expects to increase profits from recurring operations by "close to 6%" for the year to the end of June 2011, compared to the previous year. The prediction excludes currency swings.
His bullish statement pricked the ears of analysts, who have become used to a more cautious tone from the Absolut vodka owner. Pernod does not normally offer any clue on full-year profits until its annual general meeting, to be held this year on 10 November.
However, the firm's first quarter sales rose by 14% to EUR1.88bn (US$1.67bn), around 4% ahead of analysts' consensus estimate of EUR1.8bn. Martell Cognac increased sales by 45% in the period thanks to even stronger momentum in China. There were also strong double-digit gains for Jameson, as well as Scotch whisky brands Ballantine's, Chivas Regal and The Glenlivet. A mere 7% rise in sales for Absolut vodka made it the slouch of the group.
Evolution Securities analyst Simon Hales said that Pernod's statement boded well for the months ahead. "Given how early we are in the year, (Christmas and Chinese New Year are still to come), the strong growth of Pernod's higher margin brands in Q1 and Pernod management's track record of under-guiding and over-delivering, we believe EBIT growth may prove to be well ahead of 6% in the end."
What analysts and Pernod's rivals will be keen to decipher is how much Martell Cognac has fuelled Pernod's rosy prospects. It is clear that premium Cognac was the principal driver for the French firm in Q1, but does the firm's upbeat profits guidance reflect a wider resurgence in global spirits markets?
Pernod's main rival, Diageo, last week retained a more downbeat full-year forecast. It said that like-for-like operating profits would rise by more than the 2% increase seen in its last fiscal year; a stance albeit labelled "ridiculously cautious" by one analyst contacted by just-drinks.
If currency gains are excluded from both firms' first quarters, then Diageo increased sales by 5% and Pernod by 10%, even though Diageo faced a slightly easier comparison with the same period of last year.
Hales said that the wider industry could still take positives from Pernod's figures. "Although Pernod's Q1 sales growth rate is double that reported by Diageo last week, the market should be reassured that the wider industry is confirming firmer trading trends in its key US market, and that Western Europe markets are holding up relatively well," he said.
Pernod said that it had seen "gradual improvement" in the US spirits market during the three months. Remy Cointreau, also reporting results today, added to this sentiment by noting improving Cognac sales in the US and higher Champagne sales in Western Europe.
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