Blog: Olly WehringDiageo and Pernod - it could be worse

Olly Wehring | 17 February 2009

Last week's H1 results from Diageo and Pernod Ricard provided an acid test for the strength of the wine and spirits markets in the face of the global economic strife.

At first glance, Pernod appears to have done a better job at reassuring investors. Its share price rose by 6% on Friday (13 February) after the company announced a 5% organic increase in net sales. Diageo, which announced a corresponding 3% sales rise a day earlier, saw its share price drop after the firm lowered its guidance for full-year organic operating profit guidance and warned that it may cut jobs as part of a cost savings programme.

Pernod, too, lowered its full-year operating profit guidance, from an expected 8% to a range of between 5% and 8%. Diageo's revised guidance was more marked, down to a range of 4%-6%, compared to 7%-9% previously.

Both firms have different focuses for the remainder of the year and into fiscal 2010. Pernod, following its acquisition of Vin & Sprit last year, is very much oriented towards trimming its net debt. Diageo, meanwhile, which has maintained a strong cash flow, remains in the market for further acquisitions, should the right opportunity arise.

As far as the health of the drinks markets goes, both firms' results indicate that, while a slowdown has occurred across key European and North American markets, things could be a lot worse.


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