Pernod Adds to Emerging-Market Worries as China Weakens

Pernod Ricard SA (RI), Europe’s second-largest distiller, added to concern that growth in emerging-markets is ebbing as it reported a slowdown in some less-established regions.

China, previously a driver of growth at the maker of Jameson whiskey, is among countries where gains will be less pronounced than before, Paris-based Pernod said today. Where the company has previously benefited from emerging markets offsetting weakness in other parts of the world, it is now counting on “ongoing growth” in the U.S.

The distiller isn’t the first company to point to slowing growth in developing regions. Larger competitor Diageo Plc (DGE) said in July that it saw some “soft spots” in economies including Brazil and the Asia-Pacific region. The MSCI Emerging Markets Index of 819 stocks has declined 13 percent this year.

“The problem remains Asia, and particularly China,” for Pernod, Martin Deboo, an analyst at Investec Plc in London, wrote in a note. Deboo said he would review his forecasts and target price for the company.

Pernod fell 1.7 percent to 89.18 euros at 12:30 p.m. in Paris trading, reversing a gain of as much as 2.2 percent.

The company reported annual sales and profit that were broadly in line with analysts’ estimates today. Revenue growth in countries including China slowed in the second half of the year ended June 30, Pernod said.

Chinese Slowdown

Chief Executive Officer Pierre Pringuet expects the Chinese slowdown to continue in the first half of this fiscal year, he said today by phone. Government spending restraints have curbed sales of cognac and whiskey, and are particularly affecting bottles of spirits sold at more than $200, Pringuet said, including some Martell cognacs. Pernod also saw tougher conditions in countries including Brazil, it said.

“Economic cycles: this is life as usual,” Pringuet said. “We’ll capture growth where it is.” The company gets about 42 percent of sales from emerging markets, he said, and expects the U.S. to be a “growth driver” for the business.

Pernod’s guidance may imply the company is unlikely to forecast “more bullish” growth this fiscal year, said Laetitia Delaye, an analyst at Kepler Capital Markets in Paris.

Pernod’s annual revenue totaled 8.57 billion euros ($11.4 billion), rising 4 percent on an organic basis, or excluding acquisitions, disposals and currency shifts. Fourth-quarter organic sales increased 5 percent.

Cognac Share

Full-year earnings before interest, taxes and some one-time items were 2.23 billion euros, Pernod said. That compares with the 2.26 billion-euro median estimate of nine analysts surveyed by Bloomberg News. Earnings on an organic basis increased 6 percent, equalling Pernod’s forecast.

Sales rose 7 percent in Asia, Australia, Africa and the Middle East. The company said it gained share in the cognac market, even with moves by the Chinese government to limit feasting and gift-giving.

Revenue also increased 7 percent in the Americas, boosted by an 8 percent jump in the U.S. as drinkers bought beverages including Perrier-Jouet champagne.

European sales, excluding France, showed “stability” as growth in Russia and Poland offset a 3 percent decline in western Europe. French sales slid 7 percent because of a tax increase introduced last year, unfavorable economic conditions and bad weather, the distiller said.

Net debt as of June 30 fell to 3.5 times Ebitda from 3.8 times earnings a year earlier. Pernod won’t rule out “strategic acquisitions,” though “our clear guidance is that in the current world, we want to retain our investment-grade rating,” Pringuet said.

To contact the reporter on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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