Pernod Shares May Decline Without Increase in Distiller’s Earnings Outlook
Pernod Ricard SA (RI), France’s biggest distiller, may fall in Paris trading should the company fail to increase its profit outlook when it reports earnings tomorrow.
Seven out of 10 analysts surveyed by Bloomberg News said they expect the maker of Absolut vodka to raise its Oct. 20 forecast for earnings growth of about 6 percent because of increased sales of Martell cognac in China.
“If Pernod doesn’t raise its forecasts, that could be disappointing,” said Melissa Earlam, an analyst at UBS AG in London. “If they reiterate close to 6 percent, the shares may come under some pressure on the day.” UBS has a “buy” recommendation on the stock.
Pernod shares have risen 4.4 percent this month in anticipation that the liquor maker may raise the forecast. The company will probably report growth of 12 percent in first-half earnings and 10 percent in so-called organic revenue, according to the median estimate of the 10 analysts surveyed.
The results will benefit from an earlier Chinese New Year, which brought forward purchases to celebrate the festival to the second quarter from the third. Remy Cointreau SA, the maker of Remy Martin cognac, reported first-half sales growth that was double the pace analysts expected on Chinese liquor sales.
First-half sales also benefited as suppliers and drinkers in France, Pernod’s home market, stocked up on products before the end of 2011 in order to avoid a tax increase on Jan. 1.
“A positive surprise on the first-half earnings is already largely expected and priced in by the market, whereas the risks of slower momentum in Europe and in Asian whiskey in its fiscal second half are not,” Laetitia Delaye, an analyst at Kepler Capital Markets in Paris, wrote in a note dated Feb. 3.
Delaye, who has a “hold” recommendation on the stock, said the company’s profit forecast is unlikely to match the consensus estimate for growth of 8.2 percent. Pernod’s profit is defined as earnings before interest and taxation, excluding acquisitions, one-time items and currency fluctuations.
“The current guidance is very unambitious,” said Trevor Stirling, an analyst at Sanford C. Bernstein. “However, if I were in their shoes I wouldn’t feel comfortable making a significant change in guidance until I had the third quarter under my belt.” Bernstein has a “market perform” recommendation on the stock.
Distillers including Pernod and Diageo Plc (DGE) have struggled to increase sales in Europe as difficult economic conditions restrain alcohol purchases. Diageo said this month it’s “cautious as to the consumer and economic trends we will face in 2012” and maintained its goals for medium-term organic sales growth of 6 percent and to improve its profitability. Organic sales exclude the effects of currency moves and acquisitions.
Diageo, the maker of Smirnoff vodka, reported 9 percent growth in first-half operating profit. Remy Cointreau posted an increase in earnings on that basis of 31 percent and said it expects full-year growth of 15 percent to 18 percent.
Pernod is due to report first-half earnings at 7:30 a.m. Paris time tomorrow.
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