(News Bulletin 247) – The spirits giant, as expected, recorded a decline in its sales in the first half, due to a drop in its revenues in China and the United States, its strategic markets. The group was able to preserve its margins over the period, a point which reassures the market.

Among this deluge of publications this Thursday, Pernod Ricard’s performance is to the taste of investors. The world number two in spirits, however, posted declining sales in the first half of its staggered 2023-2024 financial year. Remember that the spirits giant is one of only two residents of the CAC 40, with Alstom, which is on a staggered financial year, with accounts closed at the end of June.

As anticipated by management, Pernod Ricard sold less alcohol in China and the United States in a context of normalization of consumption in these two countries after two years of exceptional growth.

Normalization of demand

Across the Atlantic, the company’s revenues in this region declined by 7% in published data. The group had to turn its back before hoping for an “improvement” in its commercial dynamics in the second half of the year, thanks in particular to significant investments in its advertising and promotional costs.

In China, Pernod Ricard’s other key market, sales fell 9%. The company points to “mixed consumer demand in a difficult macroeconomic environment” in the country. She attributes this decline to the caution of distributors ahead of the Chinese New Year.

Thus, between July and December 2023, the group which owns the Absolut vodka brands, Ricard pastis, Ballantine’s scotch whiskeys and Mumm champagne saw its turnover decline by 7% to stand at 6.59 Billions of Euro’s. In addition to declining activity in its key markets, negative currency effects also weighed down turnover by 576 million euros.

The level of billings announced by Pernod Ricard turns out to be slightly below the consensus cited by Royal Bank of Canada, since analysts anticipated revenues of 6.61 billion euros for the French group. In internal data, the drop is therefore limited to 3%, a decline which is also in line with the consensus expectations revealed by RBC.

“Pernod Ricard is deploying its strategy with confidence, in a spirits market which is normalizing, after two years of exceptional growth,” declared Alexandre Ricard.

Careful profitability

Beyond revenues, Pernod Ricard announced that it had generated current operating income (ROC) of 2.144 billion euros, an internal decrease of 3%. This indicator is slightly above the consensus cited by RBC at 2.119 billion euros.

But the corresponding margin is also above market expectations (32.3%) to increase to 32.5% in the first half of 2023/2024. It is above all this point of the publication which immunized the group against a sanction on the stock market. The company improved its margins over the first six months of its staggered financial year thanks to an aggressive pricing policy. The group has carried out price increases in all geographic areas where it is present.

The French group’s net profit, however, contracted by 12% over one year to 1.26 billion euros. This contraction in the group’s profits is linked, according to management, to “a declining current operating profit, an increase in current financial charges, with an average cost of debt of 3.1%, itself penalized by the rise in interest rates. ‘interest”.

The results for the first half of the year 2023-2024 are generally in line with a slight improvement in margins, assesses RBC.

On the Paris Stock Exchange, Pernod Ricard shares saw their gains reduced to 2.88% around 11:40 a.m., after having gained more than 6%, allowing the CAC 40 to reach a new record from the opening. It leads in its wake that of its competitor Rémy Cointreau, which is doing even better with an increase of 4.2% this Thursday morning.

Lowered 2023/2024 objectives

The world number two in the spirits sector is adjusting its turnover growth target downwards, citing “a complex environment”. Pernod Ricard now forecasts “generally stable” organic sales growth, whereas it was counting on “diversified turnover growth” in October.

The group is also reducing its share buyback program. Pernod Ricard plans to allocate an envelope of 300 million euros for the current financial year, much less than the amount of 500 and 800 million euros previously mentioned by management.

“The outlook is mixed,” says RBC, adding that “the new profit growth forecasts are in line with consensus.”

“Avoid the negative surprise effect Diageo”

For Oddo BHF, “the publication of the company’s consensus gives us the opportunity to review Pernod Ricard’s ability to support the downward consensus over the last 6 months and avoid the negative surprise effect like of Diageo”.

Indeed, market leader Diageo had recently disappointed the market, with half-year net profit which had then fallen by 18% year-on-year. The British group attributes this collapse in its accounts to a fall in sales in South America and the Caribbean, consumers in these countries are abandoning strong alcohol in favor of beers.

Despite a difficult context, the world number two in wines and spirits has for its part confirmed its medium-term objectives, as announced in June 2022. The company expects annual organic growth in its turnover in the “upper part” of a range between +4 and +7% in the medium term.

Once this target is reached, the group expects an improvement in the operating margin of around 0.5/0.6 percentage points per year. Pernod Ricard is banking on the launch of its digital platform “Convivality Platform” to accelerate the growth of its high-end brands.

This renewal of medium-term objectives is appreciated by Oddo BHF analysts. The latter praise Pernod Ricard’s ability to “deliver earnings per share growth of around +7-8% over the long term”, continues Oddo BHF. The slowdown cycle is “well advanced” and profits “are reaching bottom”, say Jefferies analysts, cited by AFP.