Pernod Ricard share price drops as full-year profit misses estimates

Pernod Ricard SA, the world’s second-biggest liquor group, reported on Thursday a 15% drop in full-year profit amid a continued market decline in China and a hefty writedown on its Absolut vodka brand.

The French company, also maker of Martell cognac and Jameson whiskey, said that net profit for the year ended June 30th dropped to €861 million from €1.02 billion a year earlier after it took a €404-million impairment charge on its Absolut business due to weakness in the US as consumers shift to brown spirits like bourbon and craft beer.

Underlying profit from recurring operations rose 2% to €2.238 billion, in line with the companys guidance of 1-3%, but trailing analysts forecast for growth of 2.5%. It also proposed a 10% dividend hike to €1.80 as part of its policy of cash distribution of approximately one-third of the groups net profit from recurring operations.

Results got a boost by the weaker euro, which helped revenue jump 8% to €8.558 billion. However, with the positive exchange effects stripped out, sales rose by only 2% from a year earlier, trailing analysts median projection for 2.6% growth, mainly due to the US weakness.

Still, sales in the Americas rose 2% due to growth in the rest of the region, while performance in Europe was stable, with Spain returning to growth, but difficulties in Eastern Europe persisted.

Asia and the rest of the world also returned to growth as sales rose 4% thanks to stabilizing performance in China. A good Chinese New Year helped curb a sales drop to 2% compared to a 23% plunge in the 2013-2014 fiscal year. India was a solid source of growth as sales in the Asian country surged 18%.

Pernod, like other spirits makers, has been weighed down by a government crackdown on luxury gift-giving and personal spending by civil servants in China, its second-biggest market that accounts for 12% of sales and 15% of profit. This, coupled with slowing economic growth, has forced the company to boost sales of cheaper liquors such as Ballantine’s whiskey in order to offset declining demand for premium spirits.

Pernod said that sales of its top 14 brands rose by 2%, driven by Ballantine’s and Martell and continued strong growth of Jameson and The Glenlivet.

“Our full year results are solid, delivering improving sales and profit from recurring operations in line with guidance. Our strategy has remained consistent and is delivering results,” said Pernod Chairman and Chief Executive Officer Alexandre Ricard. “For FY15/16, despite a challenging and volatile macroeconomic environment, we aim to continue gradually improving our business performance. We will continue to support priority brands and innovations while focusing on operational excellence.”

Pernod Ricard SA traded 4.06% lower at €90.00 per share at 09:35 GMT in Paris, trimming its year-on-year advance to 2.20%. The company is valued at €24.90 billion. According to the Financial Times, the 26 analysts offering 12-month price targets for Pernod Ricard SA have a median target of €115.00, with a high estimate of €135.00 and a low estimate of €66.00. The median estimate represents a 22.59% increase from the previous close of €93.81.