Pernod Ricard the final toast in a good week for spirits firms

Pernod Ricard the final toast in a good week for spirits firms

Pernod Ricard has added the final sprig of zest to a cheerful week for the multinational spirits makers, and the party shows no sign of fizzling out just yet.

Perhaps the only downer on Pernod Ricard's full-year results was that its share price lost some ground. This, though, followed a week of bubbling anticipation on the markets following Diageo's bullish guidance in its own full-year results. 

Pernod, on the other hand, rarely polishes its crystal ball before the first quarter of its new year is out. The Absolut vodka owner would no doubt argue that its full-year figures are enough to feast on, for now. Net sales for the 12 months to the end of June rose by 8% (5% organially), to EUR7.64bn, with net profits up by 10% to EUR1.08bn, and several high-rolling brands achieved record volumes.

Most of us in the media had the well-tuned 'emerging markets story' ready to run. Pernod benefited most strongly from consumer demand in Asia, and specifically from China's slavering thirst for expensive Martell Cognac. Europe proved a drag, although it could have been worse, while the US is looking better than it did. On the brands front, Absolut appears revitalised, while Scotch whisky and Jameson continue to march onward.

Premium is where it's at, according to Espirito Santo Investment Bank analyst Martin Dolan, who was quoted in the Wall Street Journal yesterday as saying: "If you look at the [performance] of the luxury retailers like Hermes International and Tiffany & Co, there is no doubt that the premium end of the market is doing better than the general economy."

Seeing as most people were expecting decent results from Pernod, attention inevitably turned to the future. Morningstar analyst Phil Gorham said: "Fourth-quarter results demonstrated that the premium spirits market is still fairly strong, even in developed markets, and while there are macroeconomic risks on the horizon, we expect another solid 12 months from Pernod."  

Sanford Bernstein was similarly confident on Pernod's momentum over the next 12 months: "We expect a modest uptick in top-line growth, as emerging markets are mathematically a larger part of the base for fiscal 2012 and as the drag from Europe likely diminishes." Bernstein added, though, that Pernod is likely to face currency pressure from the US$.

Bernstein also pointed out that, on an organic level, Pernod outpaced sales and operating profits growth at Diageo, which works to the same financial year. Pernod, it added, is already running ahead of Diageo's medium-term guidance.

Although Pernod did not provide guidance, its CEO, Pierre Pringuet, bolstered confidence by telling analysts: "The beginning of the financial year confirms the resilience of our markets." 

There was surprisingly little chat in the group's analyst conference call about takeovers. Pernod has done a good job of muting speculation by boxing commentators around the ears with its debt reduction strategy. This remains the key focus for the next 12 months, CFO Gilles Bogaert said yesterday, with "investment grade" and a net debt to EBITDA ratio of "close to four" still the targets.  

One might counter that net debt to EBITDA ratio of 4.4, as at the end of June, is not far off being "close to four". Is Pernod being deliberately opaque about its intentions? Unless you have amnesia or have been taking too much interest in life outside of the drinks industry (heaven forbid), you'll know that Beam Global Spirits & Wine is about to be reborn as a standalone spirits company. In these days of global consolidation, that makes it ripe for the picking.

The Times newspaper has never been one to shy away from takeover conjecture and it highlighted speculation that Pernod could be laying the groundwork for a US$9bn tilt at Beam. "Pernod has made no secret of its wish to boost its position in America," wrote Dominic Walsh, aka tsar of drinks industry journalism.  

For what it's worth, Pernod may have to find a partner-in-crime for a move on Beam, and timing is also key: ie, the later the better. A duo of Diageo and Bacardi have been analysts' frontrunners for some time, assuming anything does happen.   

For now, Pernod looks as well positioned to continue its good form as anyone can expect in these uncertain times. Asia will continue to be key to its fortunes.