Pernod Sees Slowing Growth as Emerging Markets Decelerate

Pernod Ricard SA, the world’s second-biggest distiller, joined drinks-industry peers in saying a slowdown in emerging markets will stint profit growth after first-quarter sales missed estimates.

Profit from recurring operations, a measure that excludes currency shifts and acquisitions, may increase 4 percent to 5 percent in the year ending June 2014, Paris-based Pernod said in a statement today. That’s the lowest projected growth since fiscal 2010, at the height of the financial crisis, when the maker of Absolut vodka predicted expansion of 1 percent to 3 percent. Sales for the three months ended Sept. 30 unexpectedly declined, dragged down by weakness in China.

“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, citing Asia as the main culprit. “Perhaps more important, however, is the full-year guidance. Here there’s still more disappointment.”

Diageo Plc, 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. The same day, Remy Cointreau SA reported sales that fell more than anticipated, citing a slowdown in China. China’s new government has curbed lavish spending, particularly on official banqueting and gifting -- prime cognac purchasing and drinking occasions.

Pernod, the maker of Ballantine’s and Royal Salute whisky, said so-called organic sales declined 1 percent in its first quarter, as revenue fell 6 percent in the Asia Pacific region. The median estimate of 11 analysts was for 1.7 percent growth in the measure, which exclude acquisitions and currency shifts.

Shares Drop

Pernod shares fell as much as 3 percent, the biggest intraday decline in almost two months. The stock traded down 2.6 percent at 86.60 euros at 10:58 a.m. in Paris.

Consumer-goods companies including Nestle SA, the world’s biggest foodmaker, and Heineken NV have said that slowdowns in emerging markets have hurt their growth. Pernod said today that sales in developing economies slid 2 percent compared with a 1 percent decline in mature markets. Also today, Unilever reported slowing quarterly revenue growth in less mature regions.

“Overall, there is some deceleration in emerging markets,” Gilles Bogaert, Pernod’s chief financial officer, said 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 strong sales in the first quarter of last year, and a shift by consumers toward less-expensive spirits.

‘Tough’ China

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 there were “early signs of improvement” in the 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 U.S. currency will have a positive impact on net debt when translated to euros, he said.

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