Pernod Ricard’s sales hit, but outlook remains positive by Investing.com

Investing.com — Pernod Ricard (EPA: ) on Thursday reported a marginal decline in organic sales for the fiscal year ending June 2024.

The company has faced challenges navigating a normalizing market after two years of exceptional post-pandemic growth.

“While we think it was a bit rosy for Pernod Ricard to classify these results as ‘robust’, they were in line with expectations,” analysts at RBC Capital Markets said in a note.

Despite reporting a strong overall performance in a volatile economic and geopolitical environment, organic sales fell 1%, a steeper 4% decline on a reported basis.

The reported decline in organic sales reflects the broader challenges facing the spirits market as it adjusts to post-pandemic conditions.

The company faced pressure in key markets, particularly the United States and China, where organic sales fell 9% and 10%, respectively.

“The comment that 1Q is negative should not come as a surprise,” analysts at Jefferies said in a note.

The US market in particular continued to normalize after a period of high growth during the pandemic, while China’s sales were hampered by a challenging macroeconomic environment and subdued consumer sentiment.

Across regions, the Americas posted a 5% decline in organic sales, driven largely by the normalization of the US market.

The company’s US portfolio saw retailer and distributor inventory adjustments, a trend expected to continue in the first quarter of FY25. In contrast, Canada remained flat and Brazil and Mexico saw slight growth.

In Asia and the rest of the world, organic sales rose 3%, with strong performances in Japan, Taiwan and India offset by declines in China and Korea.

The Indian market reported organic sales growth of 6%, driven by robust consumer demand and a shift towards premium products.

Europe, excluding Russia, saw modest growth of 2%, although overall organic sales in the region fell 5%.

The Global Travel Retail segment also posted a 2% increase, reflecting a rebound in passenger numbers, although sales were still hurt by the slow return of Chinese travelers.

By category, Strategic International Brands posted a 3% decline in organic sales, largely due to poor performance by Martell in China and Jameson in the US and Russia. However, strategic local brands grew 5%, supported by strong momentum from Seagram whiskeys in India and Kahlúa growth in North America and Western Europe.

Pernod Ricard’s profit from recurring operations rose organically by 1.5%, although reported profits fell by 7%. This was supported by strong pricing, operational efficiencies and disciplined cost management, which led to organic gross margin expansion of 108 basis points.

However, negative exchange rate effects, particularly the Turkish lira, Argentine peso, US dollar and Chinese yuan, affected the reported results.

The company’s free cash flow fell 33% to €963 million, a reflection of lower reported profit and increased strategic investments. Net debt increased to 10,951 million euros, and the Net Debt/EBITDA ratio increased to 3.1x.

Pernod Ricard remains confident in its medium-term financial outlook. The company targets organic net sales growth of +4% to +7% and organic operating margin growth of +50 bps to +60 bps.

Despite anticipating a weak first quarter of FY25 due to continued inventory adjustments in the US and a weak macroeconomic context in China, Pernod Ricard expects a return to organic net sales growth for the fiscal year.

At 3:25 am (0725 GMT), Pernod Ricard was trading 2 percent higher at €131.15.