Pernod cautions over emerging markets

Distiller Pernod Ricard has joined drinks-industry peers in saying a slowdown in emerging markets will stint profit growth.

Earnings before interest and tax, excluding some items and the effect of currencies and acquisitions, may increase 4 per cent to 5 per cent in the year ending June 2014, chief executive 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 per cent to 3 per cent.

Rivals Diageo and Remy Cointreau have also noted a slowdown in China as the new government curbs lavish spending, particularly on official banqueting and gifting -- prime cognac purchasing and drinking occasions.

Pernod reported so-called organic sales that unexpectedly declined 1 per cent in its first quarter ended September 30th, missing estimates, as revenue fell 6 per cent in the Asia-Pacific region. The median estimate of 11 analysts was for a 1.7 per cent increase in organic sales.

Pernod’s shares fell as much as 2.6 per cent, the biggest intraday decline in almost two months.

"Another day, and another broad-based miss from the beverage sector," Jonathan Fyfe, an analyst at Mirabaud Securities 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 have said that slowdowns in emerging markets have hurt their growth, and Pernod said today developing economies slid 2 per cent compared with a 1 per cent 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,” Mr Bogaert said.

Sales in Europe rose 3 per cent, Pernod said, aided by the UK, France and Germany. Mr 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 US.

The company expects profit to be cut by about €130 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. (Bloomberg)