Pernod Ricard Q3 sales beat forecasts, cautious on Q4

By Dominique Vidalon

PARIS (Reuters) -French spirits group Pernod Ricard posted a forecast-beating 20% jump in third quarter sales on Thursday but said COVID-19 measures in China, war in Ukraine, and a normalisation of its U.S. business could mean a softer fourth quarter.

Despite the challenges, the maker of Martell cognac and Absolut vodka, forecast organic growth of 17% in profit from recurring operations for its financial year ending June 30, in line with the market consensus for 16.9% growth.

Resilient consumption by people staying at home, the reopening of bars and restaurants and a recovery in travel would fuel strong full-year sales growth across regions, with some operating margin expansion, it added.

By 0844 GMT, Pernod Ricard shares were up 0.5% at 196.55 euros, after paring earlier gains.

"Our forecasts are roughly in line with updated guidance of 17% organic operating profit growth, though we think inflation, continued lockdown measures in China, and the ongoing conflict in Ukraine present elevated risk to near-term earnings," Morningstar analysts said in a note.

Pernod, the world's second-biggest spirits group after Diageo, reported sales of 2.447 billion euros ($2.57 billion) in the three months ended March 31 - up 20% on a like-for-like basis, beating analysts' expectations of 14.3% growth.

This reflected a 20% rise in sales in Europe despite some deceleration in March notably because of the impact of the Ukraine war, it said.

Pernod, which makes 3% of its sales in Russia, stopped exports to the country in March following Russia's invasion that began on Feb. 24.

In the United States, the group's top market, sales rose 23% in the quarter, lifted by solid demand for Jameson whiskey, Malibu, Kahlua liquors and Martell cognac. Broad-based price increases in early February and innovations such as Jameson Orange also boosted U.S. sales.

To try to counter supply chain disruptions, Pernod Ricard increased its advanced shipements to the United States in the third quarter. "This will reverse in the fourth quarter to end the year with healthy inventories," Finance Chief Helene de Tissot told analysts.

In China, sales in the third quarter grew 8%, slowing from 14% in the first half of the year, with a softer Chinese New Year performance affected by COVID disruptions.

"March was very impacted by the start of COVID restrictions and we are expecting an impact in the fourth quarter. Much will depend on how fast these restrictions can be lifted but the coming weeks may be difficult," de Tissot told Reuters, adding it was factored into the guidance.

Pernod Ricard's fiscal year starts on July 1.

($1 = 0.9507 euros)

(Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta, Sherry Jacob-Phillips and Barbara Lewis)