Pernod Sees Slowing Growth as Emerging Markets Decelerate
Earnings before interest and tax, excluding some items and the effect of currencies and acquisitions, may increase 4 percent to 5 percent in the year ending June 2014, Chief Executive Officer Pierre Pringuet said in a statement today. That’s the lowest projected growth since fiscal 2009/2010, at the height of the financial crisis, when it predicted expansion of 1 percent to 3 percent.
Diageo Plc (DGE), the world’s largest distiller, said Oct. 17 it saw “headwinds” in some faster-growing economies and that Chinese cutbacks were hurting sales of baijiu liquor. Competitor Remy Cointreau SA (RCO), the maker of Remy Martin cognac, reported sales that fell more than anticipated on the same day and cited a slowdown in China. The new government in China has curbed lavish spending, particularly on official banqueting and gifting -- prime cognac purchasing and drinking occasions.
The maker of Ballantine’s and Royal Salute whisky today reported so-called organic sales that unexpectedly declined 1 percent in its first quarter ended Sept. 30, missing estimates, as revenue fell 6 percent in the Asia-Pacific region. The median estimate of 11 analysts was for a 1.7 percent increase in organic sales.
Pernod’s shares fell as much as 2.6 percent, the biggest intraday decline in almost two months. The stock traded down 2.4 percent at 86.75 euros at 9:04 a.m. in Paris.
“Another day, and another broad-based miss from the beverage sector,” Jonathan Fyfe, an analyst at Mirabaud Securities Ltd. in London, wrote in a note, saying Asia was the primary reason for results below estimates in the first quarter. “Perhaps more important, however, is the full-year guidance. Here there’s still more disappointment.”
Consumer-goods companies including Unilever and Nestle SA (NESN) have said that slowdowns in emerging markets have hurt their growth, and Pernod said today developing economies slid 2 percent compared with a 1 percent decline in mature markets.
“Overall, there is some deceleration in emerging markets,” Gilles Bogaert, Pernod’s chief financial officer, said today in a phone interview. “On average, consumption in those markets is less dynamic, and China represents the majority of that for Pernod” because of anti-extravagance crackdowns, comparison with a high level of sales in the first quarter last year, and a move to less-expensive spirits.
For China, “the full year will be tough, let’s be clear, and we’ll probably have declining sales, but we expect a better performance in the second half,” Bogaert said.
Sales in Europe rose 3 percent, Pernod said, aided by the U.K., France and Germany. Bogaert said that there were “early signs of improvement” seen in the first quarter. Sales in the Americas were unchanged, including stable sales in the U.S.
The company expects profit to be cut by about 130 million euros ($179 million) this year due to foreign-exchange movements against the euro, primarily driven by a weakening dollar, currencies pegged to the dollar, and the Indian rupee.
The euro “is starting to be a bit too high, clearly,” Bogaert said, though that’s “linked obviously to the fact the dollar is getting too weak due to U.S. fiscal policy.” Half Pernod’s debt is in dollars, so a weaker dollar will have a positive impact on its net debt when translated into euros, he said.
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