Pernod Falls on Outlook for Shrinking Chinese Spirits Market

  • Cognac maker forecasts country's market declining 5% to 10%
  • Shares fall as much as 7.2%, the most in almost six months

Pernod Ricard Hit by China

Pernod Ricard SA fell the most in almost six months after the world’s second-largest distiller said it expects the Chinese market for spirits to shrink, contrasting with signs of a rebound seen by Remy Cointreau SA and LVMH.

Pernod Ricard expects China’s market for spirits to decline by between 5 percent and 10 percent in its fiscal year, which runs through June, the company said in a presentation to investors. The stock dropped as much as 7.2 percent in Paris, the most since Aug. 24.

Last month, Remy Cointreau reported third-quarter sales that beat estimates as appetite for cognac rebounded in China. Luxury-goods maker LVMH, which makes Hennessy cognac, reported a 4 percent increase at its drinks unit in the fourth quarter, also helped by a turnaround in the world’s most populous country. Pernod Chief Financial Officer Gilles Bogaert said the company can’t raise prices in China at the moment.

“Pernod is the least bullish of the three majors” on China, Eamonn Ferry, an analyst at Exane BNP Paribas, said by phone.

Pernod’s first-half sales in China declined 8 percent after adjusting for the earlier arrival of Chinese New Year, the maker of Absolut vodka said Thursday, worse than the 7 percent expected by analysts including Mirabaud’s Jonathan Fyfe. Sales of expensive items in China from watches to scotches have been in decline for more than two years, hurt by the government’s crackdown on extravagant spending.

Pernod also announced Thursday that it put the head of its Absolut vodka brand in charge of its North American business as it seeks to stem a decline in market share in the U.S. Absolut accounts for about a third of Pernod’s U.S. sales and is losing market share to new entrants such as Tito’s Handmade Vodka and New Amsterdam.

“The market expected the commentary to be slightly more positive about China,” Ian Shackleton, an analyst at Nomura, said by phone. “But what we should really be focusing here is the U.S., that’s the bit they’ve got to perform in.”

Pernod maintained its full-year forecast for profit growth after first-half sales rose in line with analysts’ estimates.

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