Comment - Diageo versus Pernod Ricard
Pernod Ricard and Diageo inject confidence into spirits
Comparing the two companies pound-for-pound across different regions is difficult, because their weighting in each one is slightly different. In terms of headline figures, though, I would argue that Diageo had to work harder in the home straight, following a disappointing first-half.
Diageo last week issued a strong set of numbers, with net profits up by 17% and net sales up by 5%. It also provided medium-term guidance that anticipates annual net sales and profits growth of 6% and at least 10% respectively, on an organic basis.
In its own results yesterday (1 September), Pernod did not issue guidance, but analyst group Sanford Bernstein noted that, on an organic basis, the French group was ahead of Diageo. It was also ahead of Diageo's medium-term guidance. If forecasts of a further increase in Pernod's sales and profits for the year ahead are correct, then it might retain this lead over its rival.
In Europe, Pernod scored a victory on points by virtue of its lower profile in Greece, a lighter decline than Diageo in Spain and a sales rise in its native France. Neither group had a good time in Europe, however, and both are cutting costs in the region in order to invest in emerging markets. Diageo's deal for Mey Icki in Turkey could help the Smirnoff producer to come back stronger in Europe in the next 12 months.
Diageo, meanwhile, has a strongly-growing business in Africa and is by far the biggest player in North America, which remains a highly lucrative market for spirits players. Probably the only way Pernod could push Diageo for top spot in the US would be to buy some Beam Global brands.
Pernod is more weighted towards Asia. China, specifically, punches above its weight for the French firm, producing just 6% of the group's volumes but 31% of net sales in its Asia-Rest of World division.
Diageo lags Pernod in both China and India, although its groundbreaking deal to gain indirect control of local player Shui Jing Fang could overturn that situation in China over the longer-term. India looks tougher for Diageo to crack, particularly given the added complication of the dominance of United Spirits on the market. But, it is still early days.
Beyond the two companies' differing geographic strengths, though, I think that the key message to take away from the past week is the relative strength of premium spirits sales.
In mature markets, beer and wine are both in the doldrums this year, yet demand for premium spirits appears to have held up rather well - albeit with the notable exceptions of Ireland and southern Europe. The trend is particularly true in the US, where both Pernod and Diageo have said that spirits continue to take market share from beer. In several emerging markets, meanwhile, spirits have shown higher profits potential.
Together, then, Diageo and Pernod Ricard have given the spirits industry something to cheer about.
United Spirits has denied reports that it has provided a guaranteee to the ailing Kingfisher Airlines, as questions mount over owner Vijay Mallya's options for both businesses....
Pernod Ricard has launched a television advert for its Royal Salute Scotch whisky brand in China....
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