Pernod Ricard shares drop on China and U.S. sales warning

By Dominique Vidalon

PARIS (Reuters) -Pernod Ricard warned that sales would decline in Chinese and U.S. markets in its first quarter to Sept. 30, sending shares in the drinks group down 4% on Thursday despite forecast-beating annual results.

The owner of Mumm champagne and Absolut vodka said the business environment remained volatile but it expected net sales growth for its 2023/24 financial year, with easing inflationary pressures helping its organic operating margin.

However, challenging macroeconomic conditions are expected to drive down sales in China during its first quarter, the group said, adding that a high year-on-year comparison basis will ease from the second quarter.

Its U.S. first-quarter sales are also expected to show a decline from a strong corresponding period last year, but the company said the full-year outlook is positive.

"There is an economic slowdown in China, (and) difficulties in the property market ... we are seeing some caution from wholesalers in China," Chairman and CEO Alexandre Ricard told Reuters by phone.

"China's fundamentals, however, remain very solid", Ricard added, saying he was confident about the group's ability to continue implementing price increases in the country.

Asked to comment on Chinese consumer behaviour, Ricard said consumers are going out less.

"The channels suffering most is on-trade," he said. "Night clubs are suffering big time, though we are seeing the emergence of live bars."

The world's second-biggest spirits group behind Diageo said that, with recurring free cash flow at 1.653 billion euros ($1.8 billion), it was offering shareholders a 14% dividend increase to 4.70 euros per share and a new buyback scheme worth between 500 million and 800 million euros.

MORE MODERATE PRICE INCREASES

Over the 12 months to June 30, profit from recurring operations reached 3.348 billion euros, an organic or self-generated rise of 11%, beating analyst expectations of a 9.6% rise and the company's guidance of about 10%.

Sales reached 12.137 billion euros, an organic rise of 10%, with sales in the fourth quarter alone climbing 19%, led by a recovery in demand for its Martell cognac in China, where Pernod Ricard raised prices in May.

Overall 2022/23 group sales growth reflected a 1% rise in volumes and an 8% increase in prices.

Finance Chief Helene de Tissot told analysts easing inflationary pressure in the 2023/24 financial year means that price increases aimed at protecting the group's margins can be implemented "in a more moderate manner".

Building on the strong performance for 2022/23, Pernod Ricard said it was "confidently" reiterating mid-term goals for its 2023 to 2025 financial years, aiming for the upper end of a 4-7% net sales growth range and a 50-60 basis point increase to its operating margin.

(1 = 0.9162 euros)

(Reporting by Dominique VidalonEditing by Muralikumar Anantharaman, David Holmes and David Goodman)