Bloomberg News

Pernod Sees Profit Rising 6%, Will Focus on Cutting Debt

October 20, 2011

(Updates with analyst comment in tenth paragraph.)

Oct. 20 (Bloomberg) -- Pernod-Ricard SA, Europe’s second- largest distiller, aims to increase profit by about 6 percent this fiscal year after joining rivals Diageo Plc and Remy Cointreau SA in reporting sales that beat estimates.

Pernod, which reported first-quarter “organic” revenue growth of 11 percent, is targeting the increase in earnings after reporting a gain of 8 percent on the same basis last year. The Paris-based company commented today in an e-mailed statement.

The French distiller reported a “blowout first-quarter sales performance, but a slightly disappointing full-year profit guidance,” Jamie Isenwater, an analyst at Deutsche Bank in London, wrote today. “I suspect that Pernod is being fairly conservative.”

Pernod, which makes Chivas Regal whisky and Absolut vodka, also reiterated its forecast to further reduce borrowings to around 4 times adjusted earnings before interest, taxes, depreciation and amortization by June 2012. There will be no “transformational acquisitions from our side in this and the next fiscal year,” Chief Executive Officer Pierre Pringuet said today in a phone interview.

Pernod rose as much as 1.2 percent to 65.36 euros and traded at 64.95 euros, up 0.5 percent, at 11:09 a.m. in Paris, giving the company a market value of 17.2 billion euros ($24 billion).

Rating Companies

Standard & Poor’s Ratings Services and Moody’s Investors Service both boosted Pernod’s debt ratings to investment grade after the company reported debt of 9 billion euros as of June 30, or 4.4 times adjusted Ebitda.

Pablo Zuanic, an analyst at Liberum, has said that Pernod’s debt ratios could hold it back from bidding for all, or part of, Beam Inc., the maker of Jim Beam bourbon.

“You can be like a child looking at the shop windows, saying ‘there are many toys I’d like to buy,’” Pringuet said in the interview. “But we have one focus today, to continue to deleverage the group.”

Sales of spirits including Martell cognac and The Glenlivet whisky in emerging markets including China, India and Brazil helped boost Pernod’s revenue growth. The 11 percent growth in organic sales, which exclude the effects of acquisitions, disposals and currency fluctuations, exceeded the 6.3 percent median estimate of 11 analysts surveyed by Bloomberg.

“We suspected management might err on the side of caution at this stage, as has been the case in the past,” analysts including Andy Smith and Andy Ford at MF Global in London wrote today, commenting on the new forecasts. Pernod beat last year’s profit target after raising it when the company announced first- half results.

Not Conservative

“It’s not a question of being conservative,” Pringuet said. “We announce what we’re absolutely sure to deliver.” The company’s forecast targets an increase in earnings before interest and taxation, excluding acquisitions, one-time items and currency fluctuations.

Pernod, along with Diageo and Remy Cointreau, is looking to use sales in emerging markets to offset tough conditions in more established markets including western Europe and the U.S. Diageo reported first-quarter sales yesterday that beat estimates, posting a 9 percent increase on gains in Latin America, Asia and Africa.

Diageo, the maker of Johnnie Walker whisky and Smirnoff vodka, said in August it would target average organic sales growth of 6 percent in the “medium term,” as well as improving profitability. Diageo is the world’s largest distiller.

Pernod’s first-quarter net sales rose to 1.99 billion euros from 1.88 billion euros a year earlier, the company said today. The outlook assumes “strong dynamism in emerging markets and slow growth in mature markets,” Pernod said.

Remy Cointreau today reported first-half growth that beat estimates, boosted by sales of its Remy Martin cognac in Asia and at airport shops. Organic sales rose 18 percent compared with 15 percent expected by analysts.

--Editors: Jerrold Colten, Robert Valpuesta

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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