Winemaker Bodegas Riojanas Targets Annual Profit Growth of as Much as 10%

Bodegas Riojanas SA (RIO), a Spanish producer of Rioja wine founded in 1890, expects full-year earnings to climb from a year earlier as promotions and lower operating costs offset a battered domestic market.

The Cenicero, Spain-based company may report net income growth of between 5 percent and 10 percent, Chairman Luis Zapatero said in a telephone interview today. Last year’s profit climbed about 6 percent to 700,000 euros ($952,000) on sales of 15.3 million euros.

“The second half is going to be clearly better than the first half, which was a bit negative,” Zapatero, 76, said. “We especially forecast an increase in the fourth quarter according to the data we have now.” During the first half, sales dropped 13 percent and profit sank 18 percent.

The company’s promotions and marketing efforts to woo Spanish consumers hit by the highest unemployment in Europe have pushed wine prices down more than 15 percent in the industry, Zapatero said, adding that his company is within the average. The impact on profitability has been offset by higher volumes and cost cuts across the board, he added.

About 85 percent of the company’s sales come from its Rioja wines, which include Vina Albina and Monte Real. Vina Albina reserve costs about 14 euros in a store. In Spain, reserve wines are kept for a minimum of three years before being sold.

Even as Bodegas Riojanas targets full-year growth, “the Spanish market remains weak,” Zapatero said. “The financial situation both in Spain and Europe is worrisome.”

Bodegas Riojanas shares have dropped 17 percent this year to 5.90 euros, valuing the company at 32.1 million euros.

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net;

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net

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