Bloomberg News

Pernod Raises Annual Forecast After First-Half Profit Gains

February 17, 2012

(Updates with analyst’s comment in third paragraph, CEO comment in fifth, shares in seventh.)

Feb. 16 (Bloomberg) -- Pernod Ricard SA, France’s biggest distiller, reported first-half profit that beat estimates and raised its annual earnings forecast as Chinese consumers increased purchases of spirits such as Martell cognac.

Growth in organic operating profit for the fiscal year ending in June will be “close to” 8 percent, the Paris-based maker of Absolut vodka said today in a statement. It had previously forecast growth of about 6 percent. Profit on that basis rose 17 percent in the first half, compared with the median estimate of 10 analysts for a 12 percent increase.

“They did what the market wanted them to by raising the guidance,” Anthony Bucalo, an analyst at Banco Santander in London, said today. “It’s a great set of results.”

Seven out of 10 analysts surveyed by Bloomberg News before the results said they expected Pernod to raise the profit forecast amid strong sales of spirits in China. The distiller is looking to countries outside its home market of France to drive sales growth as markets in Europe weaken.

Pernod fell 0.9 percent to 77.07 euros at 10:05 a.m. in Paris trading as France’s benchmark CAC Index slid 0.7 percent. Before today, the shares had risen 8.5 percent this year.

“The stock’s had such a great run that I imagine it’ll fall a bit,” Bucalo said before the market opened. “You get a lot of ‘travel and arrive’ on shares that have done this well.”

Chinese New Year

Pernod’s first-half organic revenue rose 11 percent, compared with estimates for a 10.4 percent increase. The company reports sales and profit on a so-called organic basis, which excludes acquisitions, one-time items and currency fluctuations.

Total revenue rose 7.8 percent to 4.6 billion euros ($6 billion), aided by purchases of drinks including Royal Salute in emerging markets, the liquor maker said.

Pernod, which also makes Ricard aniseed liquor, said sales benefited from the earlier timing of Chinese New Year, which brought forward some purchases for the festival from the third quarter to the second. Suppliers and drinkers in France also stocked up at the end of 2011 ahead of a tax increase from Jan. 1 this year. Organic sales excluding the effect of the early French purchasing rose 8 percent.

The results “are a confirmation of the relevance of our strategy,” said Chief Executive Officer Pierre Pringuet.

Promotional Spending

Alcohol sales in France fell 7 percent by volume and 4 percent in value terms in January, Pringuet said, citing Nielsen data. That was “very much in line with our own forecasts,” he said. Pernod expects tax increases to shrink the French alcohol market by 7 percent to 8 percent this year, he said.

Promotional spending was “stable” as a percentage of sales at 17.7 percent in the first half, excluding the effect of the French pre-buying. Gross margin, a measure of profitability, rose as the company sold more expensive varieties of its Martell cognac and Chivas Regal whisky. Pernod raised prices by more than 2 percent on average for its top 14 brands, it said.

The company said today it will cut borrowing to about 3.9 times adjusted earnings before interest, taxes, depreciation and amortization by the end of June. It had expected borrowing on the same basis of about 4 times adjusted Ebitda. Chief Executive Officer Pierre Pringuet said last year he did not anticipate any “transformational acquisitions” this fiscal year or next.

Credit Rating

Standard & Poor’s boosted Pernod’s credit rating one step to the lowest investment-grade ranking in October after Moody’s Investors Service did the same a month earlier. Gilles Bogaert, managing director of finance, said in October that the company aimed to retain investment-grade status. Pernod sold $2.5 billion of debt in January, its second dollar-based sale in three months, as it seeks to pay back loans.

Net debt as of Dec. 31 was 9.4 billion euros.

Pernod said today it expects the favorable effects of French pre-buying and an earlier Chinese New Year to reverse in the second half, and it sees “depressed consumption” in France because of price increases. Emerging-market sales will continue to be strong as western and southern Europe struggle, it said. The distiller predicted “gradual improvement” in the U.S.

--Editors: Paul Jarvis, Sara Marley

To contact the reporter on this story: Clementine Fletcher in London

To contact the editor responsible for this story: Sara Marley at

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