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What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 1st November 2025 (''October''). Note, within this report we refer primarily to ''core spirits'' trends which excludes the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. BNPP Exane View: US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -5.3% in the latest 4-week period to 1st November, broadly in-line with September (-5.4%). We estimate core spirits volumes declined by -4.3%, a modest improvement from September (-4.7%), while core spirits price/mix was -1.0% in October (vs. September -0.7%). Including Cocktails/Spirits-based RTDs, US industry off-trade sales declined by -0.9% in the latest 4 weeks. Prepared Cocktail growth remained very strong at +26.9%, broadly in-line with Q3 trends (+27.7%). All core spirits sub-categories saw retail sales declines in October. Company Summary Diageo core spirits retail sales declined by -8.8% in the latest 4 weeks, a modest sequential slowdown from September (-8.4%), but well below Q3 (-5.6%) and Q2 (-4.3%) levels. Diageo core spirits volumes declined by -7.9% (vs. September -8.1%) while price/mix was -1.0% (vs. September -0.3%). By brand, October saw a deceleration from Crown Royal (-12.4% vs. September -8.5%), led by -47% declines from CR Blackberry, while Don Julio (-3.7% vs. September -5.6%) and Captain Morgan (-6.4% vs. September -9.1%) saw a modest sequential improvement in October. Pernod Ricard core spirits retail sales declined by -5.8%, broadly unchanged from September (-6.1%), with core spirits volumes declining...
RI RI RCO RCO DGE CPR CPR
What happened? We have received the latest Nielsen retail off-trade data for the Western European beer industry, covering the four weeks to 05/10/2025 (''September''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country.... etc. BNPP Exane View: Industry perspective Overall, spirits industry sales declined by -4.3% in the 4 weeks to 5th October, a sequential deceleration from the prior 4 weeks (-2.0%), led by softer volumes (-5.4% vs. August -2.9%) as the industry cycled a similar comp base to the prior 4 weeks. The softer September trend took overall Q3 industry retail sales to -3.0%, broadly in-line with Q2 (-3.2%), but below Q1 levels (-1.0%). Company summary Pernod Ricard sales declined -3.0% in September (vs. August -0.5%), led by weaker volumes (-3.5% vs. August -0.9%), while price/mix of +0.6% was broadly unchanged. The weaker September trends led to Q3 retail sales declining -1.4%, a sequential moderation from -0.3% in Q2 and -0.7% in Q1. By market, Pernod Ricard saw a sequential slowdown in Germany where the company is now losing share, as well as a modest slowdown in France and GB. Diageo off-trade spirits sales declined by -5.4% in September (vs. -6.6% in August), led by a modest improvement in volume trends (-9.0% vs. August -10.3%), leading to Q3 overall retail sales -5.7%, broadly in-line with Q2 (-5.8%). Campari''s sales declined by -5.6% in September, a deceleration from +1.2% growth in August, driven by a negative volume inflection (-7.6% vs. August +0.9%), which more than offset improved price/mix (+2.1% vs. August +0.3%). Overall, Campari''s Q3 retail sales declined by -2.3%, a sequential deceleration from Q2 (-0.1%) and Q1 (+1.4%), led by softer volumes. Germany was the primary driver of weaker sequential sales trends in September, while Campari also saw a slowdown in GB and Italy, partially offset by better trends in France. Remy Cointreau sales...
What happened? We have received the latest NABCA Spirits industry data, which measures on and off-trade Spirits sales in 17 control states in the US. Control jurisdictions represent c.25% of the US Spirits market. Our key takeaways for the month of September 2025 are below. Please let us know if you would like to see our NABCA database. BNPP Exane View: Industry perspective: control states On a reported basis, spirits industry volumes grew +0.7% in the control states in September. On a selling day adjusted basis, we estimate September spirits industry volumes in the control states declined -1.0%. This marks a sequential slowdown from +0.4% growth observed in August to leave Q325 at +0.2% (cf. Q2 -1.5%; Q1 -2.1%). Total industry price / mix declined -1.6% in September (cf. Aug -2.1%). Excluding Cocktails (+9.2% in August), we estimate core spirits industry volumes declined -1.8% on a selling-day adjusted basis in the month, a sequential improvement from -2.8% in August to leave Q3 at -2.2% (cf. Q2 -3.1%, Q1 -3.6%). We estimate core (ex. cocktail) spirits price /mix declined -1.2% in the month marking a deterioration vs. August (flat). We note that the on-trade channel had a strong month with vols up +4.7% (sales +2.4%) on a reported basis, albeit on an easy comp, and outperformed the off-trade. Note: Overall, we estimate there was a +1.7% positive selling day impact YOY across the control states in September (driven by 7 additional days YOY: Utah (+2) and Alabama, Michigan, Montana, Mississippi, and North Carolina (+1) each). Company perspective Disclaimer: The company data is based upon reported volumes and this reflects calendar anomalies. Disclaimer made, Diageo reported volumes grew +0.5% in September. Diageo outperformed the industry and had strong growth in Vodka (+5.8% vs....
Summary of Q126 sales Pernod Ricard Q1 LFL sales declined -7.6% which was c.-80bp below co. cons. with the miss driven primarily by the US where LFL sales declined -16% (co. cons. -13.6%) on an estimated value sell-out decline of c.-6%. LFL sales in China declined -27% in a macro / consumer context that remains challenging. Trade inventory adjustments in the US and China (taken together) accounted for c.-3%-pts of the group Q1 LFL sales decline. Pernod Ricard''s LFL sales in India grew +3% and +7% outside Maharashtra which was negatively impacted by a material excise tax increase. News We highlight that Pernod Ricard observed some softening of the US spirits market over the summer months. Earnings We leave our earnings estimates materially unchanged. Investment thesis While the valuation of Pernod Ricard is undemanding in a historical context, we believe it appropriately reflects likely lower than historical near-term and mid-term growth. Rating and target price We maintain our Neutral rating. Our target price moves to EUR82 from EUR83 (ADR to USD19.6 from USD19.7). 15 questions for management What were the main drivers of the softening you observed in the US spirits market over the summer months by channel and by sub-category?
Pernod Ricard Pernod Ricard SA
BNPP Exane view Pernod Ricard helped to quantify the impact some of the headwinds to Q1 LFL sales with underlying growth ex. destock in the US and China estimated to be c.3%-pts better and India ex. Maharashtra Q1 LFL being c.+7% (vs. +3% reported). We also noted qualitative comment on Q1 phasing headwinds in Brazil; Poland, France and TR Europe and Americas. As to the shares, we expected a flattish reaction on the back of the release but the modest positive reaction is not a surprise given positioning and we heard nothing on the call that we think should drive a material shift today. Highlights: QandA . H2 LFL: have resumption of sales of Martell in DF starting in Q2 and this will contribute a much stronger H2 in GTR (with low comps from Dec); lapping a very weak CNY and have a later CNY this year; have strong ambition for India with a dynamic trajectory and a bit less impact from Maharashtra in H2; in the US focus is to keep improving the sell-out momentum but there is the impact of inventory adjustments which will weigh on H2. In rest of world have had resilient strong growth which is expected to continue. . Cost initiatives: have a strong track record on delivery of cost savings, EUR900m on FY23-25 with half delivered in FY25. The new EUR1bn program has started, and it starts with the top-line (will take price where and when we can). The COGS initiatives are covering the full scope of supply chain. . Destocking: the main driver of the US destocking was tariff uncertainty last year (distributor change was less relevant). In China depletions going into MAF was at around a mid-teens decline but reading underlying performance is difficult due to the later time of MAF which impacts both depletions and sell-in. . Travel retail: the domestic consumer demand in China is very soft and this has a link to travel retail demand so would assume demand in TR would also be subdued as the channel re-opens but have to see how this develops. . Europe: Q1 was...
BNPP Exane View Q1 LFL sales are c.-80bp light of co. cons. expectation with the miss primarily driven by the US (-16% LFL) where destocking appears to have been more significant than anticipated by consensus (Europe was also weaker expected). Overall, we expect a flattish market reaction (positioning is very negative) with any comments on the outlook for both Q2 and colour on the FY guide (which has been maintained) on the call likely to be drive the shares. FY25 headline metrics . Q1 LFL: -7.6% (co. cons: -6.8%; BBG cons. -7.1%) Top-line drivers Scanning the Q1 top-line drivers by region, we note that the LFL sales miss was driven by the Americas (-12% vs. co. cons. -8.5%) where it appears the impact of de-stocking in the US was larger than anticipated by consensus. Europe LFL sales (-3.6% vs. co. cons. -2.1%) was also below expectation while Asia-RoW was modestly ahead. . US: US LFL sales declined -16% (co. cons. -13.6%). Sell-out gap to market continued to close while the spirits market remained subdued. Sell-in was impact by some inventory adjustments as expected. . China: China LFL sales declined -27% (co. cons. -27.9%). Pernod Ricard comments on soft demand over the summer and into MAF with the on-trade particularly impacted. Q1 sell-in was further impacted by some trade inventory adjustments as expected. Pernod Ricard remains cautious on the demand environment ahead of the CNY period. . India: India LFL sales grew +3% (co. cons. -0.1%). Strong underlying dynamics but challenged by the excise policy changes in Maharashtra implemented in July. . Europe: Europe LFL sales declined -3.6% (co. cons. -2.1%). . GTR: GTR LFL sales declined -15% (co. cons. -17.6%). China DF sales expected to resume from Q2 and GTR expected to return to growth in FY26. Bottom-line drivers N/A - only a sales update. Other metrics . RTDs: +10% with strong growth across the range of the portfolio. FY26 outlook (unchanged) . Organic sales: expected to be a transition...
What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 4th October 2025 (''September). Note, within this report we refer primarily to ''core spirits'' trends which excludes the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. BNPP Exane View: US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -5.2% in the latest 4-week period to 4th October, a deceleration from -3.8% last month to leave Q3 at -5.4% (cf. Q2 -3.4%, Q1 -2.3%). We estimate core spirits volumes declined by -4.8% in the month (vs. -3.8% last month) to take Q3 volumes to -4.1% (cf. Q2 -3.9%, Q1 -3.2%). Core spirits price/mix declined -0.7% in the latest 4 weeks to leave Q3 in modest negative (-0.2%) territory (cf. Q2 +0.5%, Q1 +1.0%). Including Cocktails/Spirits-based RTDs, US industry off-trade sales declined by -0.6% in the latest 4 weeks to leave Q3 at +0.9% (cf. Q2 -0.1%, Q1 +0.1%). Prepared Cocktail growth remained very strong and sequentially broadly unchanged at +28.4% to leave Q3 at +27.7% (cf. Q2 +18.7%, Q1 +20.9%). No core spirits sub-categories saw retail sales growth in the month. Company Summary Diageo core spirits retail sales declined by -8.5% in the latest 4 weeks, deteriorating from -4.0% last month, to leave Q3 at -5.6% (cf. Q2 -4.3%, Q1 -2.1%). Diageo core spirits volumes declined by -8.2% to leave Q3 at -6.2% (cf. Q2 -5.7%, Q1 -4.3%) while price/mix declined -0.3% in the month to leave Q3 at +0.6%. The sequential deterioration in Diageo''s sequential sales trend was primarily driven by Crown Royal which flipped from strong (+6.0%)...
What happened? We have received the latest Cognac shipment data from BNIC for September 2025. While we make our usual caution on not reading too much into short-term trends (which can be very volatile), our key takeaways are below. Key takeaways Cognac shipment volumes out of the Cognac region declined by -20% in September to leave Q3 at -26% confirming a deterioration in the quarterly trend (cf. Q2 -5%, Q1 -14%). Looking at trends relative to a pre-pandemic (2019) base, Q3 shipments were -47% below (cf. Q2 -38%, Q1 -24%). Global Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane NAFTA Cognac shipments to the NAFTA region declined -21% in September. While this marks a significant improvement on August (-55%) it still leaves Q3 shipments in material decline at -40% (cf. Q2 +2%, Q1 +1%). Compared with 2019 levels, NAFTA Q3 shipments were -69% below (cf. Q2 -45%, Q1 -22%). NAFTA Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Far East Cognac shipments to the Far East region declined by -34% in the month to leave Q3 at -30% (cf. Q2 -13%, Q1 -44%). Compared with 2019 levels, Far East QTD shipments were -41% below (cf. Q2 -40%, Q1 -38%). Far East Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Europe Cognac shipments to the Europe region declined -9% in September to leave Q3 shipments at -8% (cf. Q2 -8%, Q1 -21%). Compared with 2019 levels, Europe shipments declined by -17% in Q3 (cf. Q2 -31%, Q1 -37%). By Quality By quality, VS shipments out of the Cognac region declined by -11% in September to leave Q3 at -30% (cf. Q2 -1%, Q1 -14%). VSOP shipments declined by -26% to leave Q3 at -19% (cf. Q2 -10%, Q1 -15%). Finally, XO shipments declined by -39% to leave Q3 at -34% (cf. Q2 -4%, Q1 -12%).
We have adjusted our estimates to reflect lower FY26e organic sales (-2.1% from -0.9% previously) and EBIT growth (-2.7% from -1.2% previously) forecasts and updated FX. The reduction to our FY26e organic growth estimates reflects continued consumer demand / spirits industry weakness across major markets (US, China and Europe) and we reduce forecasts modestly across the regional reporting segments. We do not consider the changes to be material; our rating is unchanged. We reduce our target price from EUR87 to EUR83 (ADR from USD20.3 to USD19.7).
What happened? We have received the latest Nielsen retail off-trade data for the Western European beer industry, covering the four weeks to 07/09/2025 (''August''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country....etc. BNPP Exane View: Industry perspective Overall spirits industry sales declined by -2.2% in the 4 weeks to 7th September, a modest sequential improvement from -3.0% declined in the prior period, leading Q3TD industry sales to -2.6% (vs. Q225 -3.2%, Q125 -1.0%). Off-trade volumes declined -3.0% in the month (cf. -3.7% in the prior 4 weeks). Industry price/mix grew +0.8% (c.f. +0.7% in the prior period). Company summary Pernod Ricard sales declined -0.6% in the latest 4 weeks, from -0.9% in the prior period. Pernod Ricard''s off-trade volumes declined -0.9%, a modest improvement from -1.3% declines last month, while price/mix was +0.4% (vs. +0.5% last month). By market, Pernod Ricard saw continued better trends in GB and Germany, partially offset by weaker trends in France and Spain in the month. Diageo off-trade spirits sales declined by -6.7% in the latest 4 weeks, a slowdown compared with the prior month (-5.2%), taking Q3TD to -5.9% (c.f. Q225 -5.8%. Q125 +0.1%). In the latest 4 weeks, volumes drove the sequential deceleration (-10.3% vs. -7.7% in the prior 4 weeks), partially offset by stronger price/mix (+4.1% vs. +2.7% last period). By market, the sequential slowdown was driven by softer trends in GB and France in particular. Campari''s sales grew by +1.2%, a sequential improvement from -3.1% declined in the prior month, taking Q3TD sales to -1.1% (c.f. Q225 -0.1%, Q125 +1.4%). Campari''s off-trade volumes grew by +0.9%, from -3.8% in the prior month, while the improvement was only partially offset by softer price/mix (+0.3% vs. +0.7% last month). By market we note that Campari''s improved trends were predominantly driven by Germany and GB, which...
What happened? We recently caught up with Pernod Ricard (it reports Q126 sales on 16th October) to get an update on what the company has been saying to investors over recent weeks. Pernod Ricard''s FY26 outlook remains unchanged. BNPP Exane View: Overall, we felt the tone was slightly on the cautious side although given that Pernod Ricard already commented with FY25 results that the Q126 LFL sales decline would likely be worse than Q125 (-6%) we do not expect a significant shift in consensus Q1 LFL sales growth expectations which may drift a little further toward -7% (cf. BBG cons. -6.3%). We noted comment that the US spirit industry has softened over the summer. See below for more colour: US: Pernod Ricard sees its US value sell-out (Neilsen /NABCA combined) in cal. Q3TD as trending at c.-6-7%. While this means the gap vs. industry has narrowed this is mainly a function of the US market softening over the summer, towards Pernod Ricard''s trend. As flagged with FY25 results, fiscal Q126 will see the impact of distributor de-stocking which means the sell-in decline could be greater than Q125 (-10%). Pernod Ricard will assess the need for further destocking after the OND (festive) season. China: the negative trend in China is likely to be exacerbated by inventory adjustments following the conclusion of the anti-dumping investigation and to a lesser extent by the later timing of MAF. Europe: our sense was that the Europe business Q1 LFL sales is likely to be in negative territory with most markets seeing soft trends. Consumer sentiment in Germany continues to be a stand-out (in terms of weakness) and Poland is likely to have a softer start to FY26. The UK market is turning modestly more positive.
What happened? We have received the latest NABCA Spirits industry data, which measures on and off-trade Spirits sales in 17 control states in the US. Control jurisdictions represent c.25% of the US Spirits market. Our key takeaways for the month of August 2025 are below. Please let us know if you would like to see our NABCA database. BNPP Exane View: Industry perspective: control states On a reported basis, spirits industry volumes declined by -0.9% in the control states in August. On a selling day adjusted basis, we estimate August spirits industry volumes in the control states grew by +0.3%. This marks a modest sequential slowdown from the +1.0% growth observed in July, taking Q325TD to +0.7% (cf. Q2 -1.5%; Q1 -2.1%). Excluding Cocktails (+34.8% in August), we estimate core spirits industry volumes declined -2.9% on a selling-day adjusted basis in the month, a modest sequential deceleration from -2.0% in July, but modestly ahead of June (-3.7%) and May (-3.9%). Note: Overall, we estimate there was a -1.2% negative selling day impact YOY across the control states in August (driven by 4 fewer days YOY in Utah, and 1 fewer day in Alabama, Mississippi, Montana and North Carolina). We have not yet received the price / mix figures for August from NABCA. Company perspective Disclaimer: The company data is based upon reported volumes and this reflects calendar anomalies. Disclaimer made, Diageo reported volumes declined -2.3% in August. We note that despite Diageo seeing declining volume trends in Tequila (-3.8%) in August, as well as negative trends across most other sub-categories, this was partially offset by strong growth in Canadian Whisky (+10.3%). Cocktails had a minimal impact on Diageo''s growth rate in August; we estimate Diageo core spirits volumes also declined by -2.3%. Pernod...
What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 6th September 2025 (''August''). Note, within this report we refer primarily to ''core spirits'' trends which excludes the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. BNPP Exane View: US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -3.9% in the latest 4-week period to 6th September, a modest deceleration from -3.3% last month, taking Q325TD to -3.6% (cf. Q2 -3.4%, Q1 -2.3%). We estimate core spirits volumes declined by -3.8% in the month (vs. -3.5% last month) to take Q3TD volumes to -3.7% (cf. Q2 -3.9%, Q1 -3.2%) while price/mix was flat in the latest 4 weeks (from +0.3% in July). Including Cocktails/Spirits-based RTDs, US industry off-trade sales grew by +1.4% in the latest 4 weeks (cf. July +1.8%, Q2 -0.1%, Q1 +0.1%). From a sub-category perspective, we note that Prepared Cocktail growth saw a further acceleration in the latest 4 weeks to +28.6% (cf. July +26.3%, Q2 +18.6%, Q1 +20.9%). Company Summary Diageo core spirits retail sales declined by -4.0% in the latest 4 weeks (cf. July -4.2%, Q2 -4.2%, Q1 -2.2%). Diageo core spirits volumes declined by -5.1% (cf. July -5.3%, Q2 -5.7%, Q1 -4.3%) while price/mix of +1.2% remained unchanged versus the prior month. Diageo''s overall sales trends saw a very modest sequential improvement in the latest 4 weeks, led mainly by the contribution of Crown Royal Blackberry (c.+295% in August) which was alone a c.+210bps positive contribution to Diageo''s retail sales growth. However, we do note that Don Julio...
What happened? We have received the latest Cognac shipment data from BNIC for August 2025. While we make our usual caution on not reading too much into short-term trends (which can be very volatile), our key takeaways are below. BNPP Exane View: Cognac shipment volumes out of the Cognac region declined by -34% in August to leave QTD at -30% and marking a deterioration in trend (cf. Q2 -5%, Q1 -14%). Looking at trends relative to a pre-pandemic (2019) base, QTD shipments were -51% below (cf. Q2 -38%, Q1 -24%). Global Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane NAFTA Cognac shipments to the NAFTA region declined -55% in August to leave QTD at -48% (cf. Q2 +2%, Q1 +1%). Compared with 2019 levels, NAFTA QTD shipments were -68% below (cf. Q2 -45%, Q1 -22%). NAFTA Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Far East Cognac shipments to the Far East region declined by -28% in the month to leave QTD at -27% (cf. Q2 -13%, Q1 -44%). Compared with 2019 levels, Far East QTD shipments were -41% below (cf. Q2 -40%, Q1 -38%). Far East Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Europe Cognac shipments to the Europe region grew +2% in August to leave QTD shipments at -7% (cf. Q2 -8%, Q1 -21%). Compared with 2019 levels, Europe shipments declined by -15% in QTD (cf. Q2 -31%, Q1 -37%). By Quality By quality, VS shipments out of the Cognac region declined by -43% in August to leave QTD at -38% (cf. Q2 -1%, Q1 -14%). VSOP shipments declined by -18% to leave QTD at -15% (cf. Q2 -10%, Q1 -15%). Finally, XO shipments declined by -41% to leave QTD at -32% (cf. Q2 -4%, Q1 -12%).
What happened? We have received the latest Nielsen retail off-trade data for the Western European beer industry, covering the four weeks to 10/08/2025 (''July/August''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country....etc. Note: there appears to have been an upward restatement to last month''s (June/July) spirits industry figures e.g. industry vols last month declined -7.5% per last month''s release but have been restated to -5.7% decline per today''s update. BNPP Exane View: Industry perspective Overall spirits industry sales declined by -3.2% in the 4 weeks to 10th August, a modest sequential improvement from the -4.3% decline last month, but in-line with overall Q2 trends (-3.2%). Off-trade volumes declined -3.9% in the month (cf. -5.7% in the prior 4 weeks). Industry price/mix grew +0.7%, a sequential moderation from the prior period (+1.5%). We note that unlike the Beer and Soft Drinks trends, which are sequentially weaker YoY on much tougher comps, the European spirits data faced a modestly sequentially easier comp in this latest period (industry sales -2.5% in the same period last year vs. -1.8% in the prior period last year). Company summary Pernod Ricard sales declined -0.9% in the latest 4 weeks, from -1.8% in the prior period. Pernod Ricard''s off-trade volumes declined -1.4%, an improvement from -3.7% declines last month, while this was partially offset by weaker price/mix trends (+0.5% vs. +1.9% last month). By market, Pernod Ricard saw continued growth in France (+1.9%) which helped to offset declining trends in Germany (-6.0%) and GB (-2.0%). Diageo off-trade spirits sales declined by -5.3% in the latest 4 weeks, a modest sequential improvement YoY (vs. -6.8% last month). Volumes remained in decline (-7.8%) but improved sequentially (-11.2% in the prior month), partially offset by softer price/mix (+2.8% vs. +5.0% last month). By market, we note...
Summary of FY25 results Pernod Ricard FY25 LFL sales declined -3.0% (in-line with BBG cons.) and FY LFL EBIT declined -0.8% (BBG cons. -2.7%). FY25 results were therefore a beat at the bottom-line and organic profit growth was ahead of expectation across all regions. We note however that FY25 group organic EBIT margin expansion (+64bp YOY) was principally driven by a reduced AandP (+97bp YOY contribution). FY EPS was a c.+2% beat vs. BBG cons. FY DPS at EUR4.70 was flat YOY and in-line with expectations. News We highlight that Pernod Ricard expects a Q126 LFL sales decline that is slightly worse than that in Q125 (-5.9%). Earnings We revise our FY26e-FY28e EPS by c.-7-8% primarily driven by a combination of revised FX and finance costs. Investment thesis While the valuation of Pernod Ricard is undemanding in a historical context, we believe it appropriately reflects likely lower than historical near-term and mid-term growth. Rating and target price We maintain our Neutral rating. Our target price moves to EUR87 from EUR89 (ADR to USD20.3 from USD21.0). 15 questions for management Please could you update us on the size of your RTD business in the US and its growth in FY25?
BNPP Exane view The main incremental point of note from the call was that Pernod Ricard expects a Q1 LFL sales decline that is slightly worse than the c.-6% last year (Q125) (note: Q126 LFL sales co. cons. -0.8%; BBG cons. +0.3%). Overall, we view the share price reaction this morning (c.+7%) as very generous and likely in large part driven by positioning. Having said this, as a result of the move we understand that the stock is now at much lower risk of removal from the EuroStoxx 50 index tomorrow and given the size of index funds in the US the shares could rise further on this dynamic this afternoon. Highlights: QandA . Margins: this FY will have a tariff headwind of EUR80m (gross annualised) mostly in FY26 and have a high basis in FY25 from all the efficiencies achieved; there will be some COGS inflation esp. from young whiskies. Offsetting this will be further efficiencies but unclear if this will be enough to fully offset. Believe that the price environment means the net level will be subdued with different contexts by market. When it comes to mix, given inventory adjustment in US and China, it could still be a drag but it is early days. . India: now #2 market. Q1 will be impacted by change in Maharashtra which is one of the top states for Pernod. The increase in excise tax was implemented in mid-July (300% to 450%) will increase RSP by above 1/3rd in the state. FY26 could be a bit below mid-term algo but still strong. . Q1: expect some inventory adjustments in the US and China. In the US expect adjustment to be throughout the year (given desire to keep stock sufficient ahead of OND which is expected to be very solid) but starting in Q1, but in China expect strong skew to Q1. In Q1 expect decline slightly worse than last year. . Improving LFL in FY26: improving trends through the year driven by GTR (resumption of DF China from Q2); China expect improving trends towards stabilisation. In India expect strong growth and in US underlying trends...
BNPP Exane View At first read the FY25 results look fairly re-assuring given that both Q4 LFL sales and FY EBIT are ahead of consensus expectation and the FY26 outlook is largely unchanged. However, we note that the profit beat appears to be driven by reduced AandP (15.3% of sales in FY25). Furthermore, while consensus had already expected an H2 weighted FY26, we suspect comments on the expected LFL sales decline in Q1 and distributor inventory adjustments throughout FY26 in the US will not be well-liked by the market. Overall, with the recent rebound in the shares in mind we don''t think this will be good enough and call the shares down c.-2%. FY25 headline metrics . Q4 LFL: -0.3% (co. cons: -0.8%; BBG cons. -0.8%) . FY LFL EBIT: -0.8% (co. cons: -3.1%; BBG cons. -2.7%) . FY EBIT: EUR2,951m (+2.6% vs. co. cons.; +1.5% vs. BBG cons.) . FY EBIT margin (%): 26.9% (co. cons. 26.3%; BBG cons. 26.4%) . FY LFL EBIT margin YOY (%): +64bp (co. cons. -12bp; BBG cons. +10bp) . FY EPS: EUR7.26 (+4.7% vs. co. cons.; +1.9% vs. BBG cons.) . FY DPS: EUR4.70 (flat YOY; in-line with BBG cons.) Top-line drivers Scanning the Q4 top-line drivers by region, we note that the modest Q4 beat (-0.3% vs. co. cons. -0.8%) was driven by a better-than-expected performance in Asia/RoW (+1.6% vs. co. cons. +0.2%) and in Europe (+1.5% vs. co. cons. +1.1%), which more than offset weaker trends in the Americas (-5.2% vs. co. cons. -4.3%). Bottom-line drivers Scanning the FY LFL EBIT development by segment, we note that the FY25 LFL EBIT beat (-0.8% vs. co. cons. -3.1%) was driven by beats across all regions, led by Asia/RoW (-1.2% vs. BBG cons. -4.0%), with Europe (-1.4% vs. BBG cons. -3.1%) and Americas (+0.3% vs. BBG cons. -0.2%) also ahead of consensus estimates. Note: the +10bp group EBIT margin change (+64bp LFL) reflects gross margin: -70bp (-50bp LFL), AandP +80bp (+97bp LFL) and structure costs -10bp (+17bp LFL). We note that FY25 AandP was 15.3% of sales, down -97bps...
What happened? We have received the latest NABCA Spirits industry data, which measures on and off-trade Spirits sales in 17 control states in the US. Control jurisdictions represent c.25% of the US Spirits market. Our key takeaways for the month of July 2025 are below. Please let us know if you would like to see our NABCA database. BNPP Exane View: Industry perspective: control states On a reported basis, spirits industry volumes grew by +1.4% in the control states in July. On a selling day adjusted basis, we estimate July spirits industry volumes in the control states grew by +1.0%. This marks a material sequential improvement from the -2.4% decline observed in June (cf. Q2 -1.5%; Q1 -2.1%). Excluding Cocktails (+31.4% in July), we estimate core spirits industry volumes declined -1.9% on a selling-day adjusted basis in the month, a sequential improvement from -3.7% in June and -3.9% in May. Note: Overall, we estimate there was a +0.3% positive selling day impact YOY across the control states in July (driven by 3 additional days YOY in Utah). We have not yet received the price / mix figures for July from NABCA. Company perspective Disclaimer: The company data is based upon reported volumes and this reflects calendar anomalies. Disclaimer made, Diageo reported volumes declined -1.2% in July. We note that Diageo registered positive volume growth in Tequila (+0.4%) but underperformed the category (+3.4%). In other categories, strength in Canadian (+5.3%) was offset by a decline in reported volumes in Vodka (-4.0%) and US Whiskey (-6.1%). Cocktails had minimal impact on Diageo''s growth rate, and we estimate Diageo''s core spirits volumes declined also declined -1.2% in the month. Pernod Ricard volumes declined -1.5% on a reported basis in July. Pernod Ricard saw strong growth in Irish...
What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 9th August 2025 (''July''). Note, within this report we refer primarily to ''core spirits'' trends which excludes the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. BNPP Exane View: US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -3.1% in the latest 4-week period to 9th August, improving from -4.6% last month (cf. Q2 -3.2%, Q1 -2.4%). We estimate core spirits volumes declined by -3.3% in the month vs -4.2% in Jun/Jul (cf. Q2 -3.7%, Q1 -3.3%). We estimate core spirits retail price/mix was around flat in the month at +0.2% (cf. Q2 +0.5%, Q1 +1.0%). Including Cocktails/Spirits-based RTDs, US industry off-trade sales grew by +2.0% in the latest 4 weeks (cf. Q2 +0.1%, Q1 +0.3%). From a sub-category perspective, we note that Prepared Cocktail growth accelerated materially to +26.7% in the latest 4-weeks (cf. Q2 +18.9%, Q1 +21.1%). Company Summary Diageo core spirits retail sales declined by -4.0% in the latest period, improving from -6.6% last month to (cf. Q2 -3.9%, Q1 -1.9%). Diageo Q2 core spirits volumes declined -5.1% (cf. Q2 -5.4%, Q1 -4.1%) while price /mix growth moderated to +1.2% (cf. Q2 +1.6%). The sequential improvement in Diageo''s off-trade spirits growth appears to be primarily driven by Crown Royal comps, driven by Blackberry. Crown Royal sales in the latest 4 weeks grew +0.8% (cf. Q2 -4.7%, Q1 -3.3%) including +155% growth for Blackberry. which saw it brand sales decline -12.2% in the month (cf. +1.3% last month) as Blackberry returned to decline....
What happened? We have received the latest Nielsen retail off-trade data for the Western European beer industry, covering the four weeks to 13/07/2025 (''June/July''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country....etc. BNPP Exane View: Industry perspective Overall spirits industry sales declined by -5.8% in the 4 weeks to 13th July, a sequential deterioration from the -2.5% decline last month to leave Q2 at -3.6% (cf. Q1 -0.9%). Off-trade volumes declined -7.5% in the month (cf. -2.5% in the prior 4 weeks) to leave Q2 at -4.8% (cf. Q1 -2.0%). Industry price/mix grew +1.8% to leave Q2 at +1.3% (cf. Q1 +1.1%). We note that industry retail sales were in decline in all major markets but most materially in Germany (-14.5%) and Italy (-5.7%). Company summary Pernod Ricard sales declined -2.1% in the latest 4 weeks to leave Q2 at -0.4% (cf. Q1 -0.7%). Pernod Ricard''s off-trade volumes declined -3.2% to leave Q2 at -0.5% (cf. Q1 -1.3%). Pernod Ricard outperformed the industry in all major markets in Q2 except for Spain. We note that Q2 off-trade sales in France grew +2.4% in market that declined -2.0%. Diageo off-trade spirits sales declined by -9.0% in the latest 4 weeks to leave Q2 at -6.4% (cf. Q1 +0.1%). Volumes remained in material decline (-13.7%) to leave Q2 at -9.9% (cf. Q1 -1.7%) while price / mix remained well above the industry at +5.5% to leave Q2 at +4.0% (cf. Q1 +1.8%). By market, we note the Q2 volume decline was driven by Germany (-32.7%); France (-7.1%) and UK (-5.0%). Campari''s sales declined by -0.5% in the latest 4 weeks to leave Q2 at -0.1% (cf. Q1 +1.4%). Campari''s off-trade volumes declined -1.7% to leave Q2 at -0.7% (cf. Q1 +1.1%). By market we note that strong retail sales growth over the latest 4 weeks in France (+5.2%), the UK (+6.5%) and other markets (PT, NL, BE and AT combined were up +17.8%) was offset by weakness in Italy (-8.1%)...
What happened? We have received the latest NABCA Spirits industry data, which measures on and off-trade Spirits sales in 17 control states in the US. Control jurisdictions represent c.25% of the US Spirits market. Our key takeaways for the month of June 2025 are below. Please let us know if you would like to see out NABCA database. BNPP Exane View: Industry perspective: control states On a reported basis, spirits industry volumes declined by -2.3% in the control states in June. On a selling day adjusted basis, we estimate June spirits industry volumes in the control states declined by -2.4%, a modest slowdown from May (-1.6%), leading to Q225 selling-day adjusted volume declines of -1.5% (vs. Q125 -2.1%, Q424 +0.5%). Excluding Cocktails (+12% in June), we estimate core spirits industry volumes declined -3.7% on a selling-day adjusted basis in the month, broadly in-line with May trends (-3.9%), leading to overall Q225 adj. core spirits volumes of -3.2% (vs. Q1 -3.6%, Q4 -1.4%). Note: Overall, we estimate there was a +0.1% positive selling day impact YOY across the control states in June. We have not yet received the price / mix figures for June from NABCA. Company perspective Disclaimer: The company data is based upon reported volumes (incl. Cocktails) and this reflects calendar anomalies. Disclaimer made, Diageo reported volumes declined by -5.9% in June. We note that Diageo saw declining trends in reported volumes across all categories with the exception of Cordials (+0.9%), and most notably, saw declining trends in Tequila (-3.4% vs. category +0.7%), the first negative month since our category-level records began in 2020. Pernod Ricard volumes declined by -4.6% on a reported basis in June. By category, similarly to Diageo, all of Pernod''s sub-categories (ex. Cordials) saw reported...
What happened? Pernod Ricard has signed an agreement to sell its Imperial Blue business division to Tilaknagar Industries. Closing of the deal is subject to approval from the Competition Commission of India and is expected to occur within the coming months (in 6 months from signing per Tilaknagar). BNPP Exane View: Pernod Ricard comment on the sale of Imperial Blue enabling the business to fully tap into premiumisation trends and support sustained profitable growth. Upon closing, the transaction is expected to be immediately and meaningfully accretive to Pernod Ricard India''s operating margin and net sales growth rate. Transaction details Tilaknagar have disclosed that consideration to be paid to Pernod Ricard for Imperial Blue is INR41.9bn (EUR413m) of which a small portion (EUR28m) will be deferred until FY30. Imperial Blue has a c.9% volume share of the whisky segment in India and is the #3 whisky brand globally by volume with c.22m 9-litre case sales in LTM to March-2025. The brand had sales of INR30.67bn (EUR302m) in LTM to March-2025. This therefore implies an EV/sales valuation of 1.35x for the business (profits for the business do not to be appear to be disclosed by either Tilaknagar or Pernod Ricard). We note that according to a regulatory filing by Tilaknagar, Imperial Blue achieved sales of INR31.38bn in FY23 (to June); INR30.49bn in FY24 (-2.8%) and is estimated to generate sales of INR32.08bn (+5.2%) in FY25. Implications for Pernod Ricard Sales of EUR316m (FY25e) for the brand equates to c.2.9% of Pernod Ricard group revenue. Imperial Blue has a meaningfully lower EBIT margin than the group average as we therefore guestimate it accounts for c.1% of group EBIT. The transaction is therefore likely to be only modestly earnings dilutive. We estimate the disposal will reduce Pernod Ricard''s ND/EBITDA ratio by c.0.1x. The potential sale of Imperial Blue by Pernod Ricard has been widely reported by the local Indian press. While we were...
What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 12th July 2025 (''June/July''). Note, within this report we refer primarily to ''core spirits'' trends which excludes the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. BNPP Exane View: US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -5.0% in the latest 4-week period to 12th July, decelerating from -2.9% last month to leave Q2 at -3.6% (cf. Q1 -2.4%, Q4 -1.5%). We estimate core spirits volumes declined by -4.5% to leave Q2 at -4.0% (cf. Q1 -3.3%, Q4 -3.1%). We estimate core spirits retail price/mix turned negative over the latest 4-weeks at -0.5% to leave Q2 at +0.4% (cf. Q1 +0.9%, Q4 +1.6%). Including Cocktails/Spirits-based RTDs, US industry off-trade sales declined by -0.2% in the latest 4 weeks to leave Q2 also at -0.2% (cf. Q1 flat, Q4 +0.8%). From a sub-category perspective, we note that Cocktails (+18.8%) and Cordials (+2.3%) were the only categories with value growth in positive territory in Q2. Company Summary Diageo core spirits retail sales declined by -6.9% in the latest period, deteriorating from -2.5% last month to leave Q2 at -4.6% (cf. Q1 -2.3%, Q4 +2.0%). Diageo Q2 core spirits volumes declined -5.7% in Q2 (cf. Q1 -4.5%) while price /mix moderated to +1.5% (cf. Q1 +2.2%). The sequential deceleration in Diageo''s off-trade growth was in large part driven by Crown Royal which saw it brand sales decline -12.2% in the month (cf. +1.3% last month) as Blackberry returned to decline. Crown Royal total brand Q2 sales declined -5.5% (cf. Q1 -4.2%)....
Apologies for delay in sending this month''s update (the data was released on Friday 11th July, while I was away marketing in the US). What happened? We have received the latest Nielsen retail off-trade data for the Western European spirits industry, covering the four weeks to 15/06/2025 (''May/June''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country....etc. BNPP Exane View: Industry perspective Overall spirits industry sales declined by -1.8% in the 4 weeks to 15th June, a sequential improvement from the -8.8% decline last month to leave QTD at -2.9% (cf. Q1 -0.9%). Off-trade volumes declined -2.6% in the month (cf. -9.4% in the prior 4 weeks) to leave QTD at -4.0% (cf. Q1 -2.0%). Industry price/mix moderated to +0.9% to leave QTD at +1.1% (cf. Q1 +1.1%). By market, we note industry retail sales were in decline in the month across major markets except for France (+2.2%). Company summary Diageo off-trade spirits sales declined by -4.3% in the latest 4 weeks to leave QTD at -5.6% (cf. Q1 +0.1%). Volumes remained in material decline (-8.4%) to leave QTD at -8.7% (cf. Q1 -1.7%) while price / mix remained well above the industry at +4.5% to leave QTD at +3.5% (cf. Q1 +1.8%). By market we note Diageo volumes were weak in Germany (-27.7%) and the UK (-6.3%) but grew in France (+2.7%) and Italy (+7.9%). Pernod Ricard sales grew +5.2% in the latest 4 weeks to leave QTD at +0.1% (cf. Q1 -0.7%). Pernod Ricard''s off-trade volumes grew +5.9% to leave QTD at +0.4% (cf. Q1 -1.3%). Pernod Ricard''s outperformance of the industry was driven by strength in France (sales +7.2% with Ricard brand sales +10.3%) and Germany (sales +8.9%). Campari''s sales declined by -0.6% in the latest 4 weeks to leave QTD flat (cf. Q1 +1.4%). Campari''s off-trade volumes grew -2.4% to leave QTD at -0.4% (cf. Q1 +1.1%). By market we note that strong retail sales growth in France (+11.4%) and the UK...
What happened? China''s Ministry of Commerce (MOFCOM) has announced its final rulings with regard its anti-dumping investigation on EU Brandy (Cognac). We summarise our current understanding of the main conclusions, relevant for our EU Distiller coverage, of the investigation below: . All the large EU Distillers: Martell (Pernod Ricard), Remy Martin (Remy Cointreau); Courvoisier (Campari); and Hennessy (LVMH) are included in the list of companies that have agreed minimum price commitments with the Chinese authorities which come into effect with the final ruling today. . The minimum import price, once effective, will not be adjusted within 12 months. . The price commitments will last for 5 years from July 5, 2025. . There is to be no retroactive collection of anti-dumping duties corresponding to the period from the preliminary anti-dumping duties (Oct 11, 2024) to July 4, 2025. We believe this means guarantees / deposits held by the Chinese customs in respect of the preliminary duty deposits will be released back to the Cognac players. . Any deemed violation of the price commitment agreement will lead to previously calculated anti-dumping duties being applied for the relevant Cognac importers. BNPP Exane View: We believe market expectations were set for a price commitment deal to be struck between the Cognac players and the Chinese authorities and this appears to be what is confirmed today. What remains unknown is what the minimum import price for each of the Cognac players will be (note: this does not appear to be stated in Annex 3 of the ruling which contains the other details of the minimum price commitment). Overall, with the caveat that much still depends on the specifics of the size of the implied price increase driven by the minimum price commitments, we view the news of the ruling as a modest positive for the Cognac players since: 1) the ruling appears to confirm avoidance of the worst case scenario (punitive tariffs); 2) the price...
We have adjusted our estimates primarily to reflect updated FX. We have made modest revisions to our organic operational forecasts. We do not consider the changes to be material; our rating is unchanged.
What happened? We recently caught up with Pernod Ricard ahead of its closed period (it reports FY25 results on 28th August) to get an update on what the company has been saying to investors over recent weeks. Pernod Ricard outlook remains unchanged. Overall, we felt the company were generally balanced in terms of Q4 and FY25 trends, noting that current consensus (BBG cons FY25 LFL sales -2.9%) is in-line with guidance for LSD% LFL sales declines for the year. On FY26, while the company reiterated its view that it would be a ''transition year'', it commented that as such, it would expect LFL sales to fall anywhere between the LSD% decline in FY25 and the low-end of the mid-term growth algorithm of +3-6% (expected from FY27). As such, we would not be surprised to see BBG consensus FY26 LFL sales growth of +2.3% come down, closer to the mid-point of that implied range (between c.-3% and c.+3%). See below for more colour: BNPP Exane View: US: Pernod Ricard noted that while Nielsen/NABCA data for April was a little stronger in the US, this did soften in May. The company commented that it is aiming for an appropriate level of inventories in the US by the end of FY25, but that the Q325 stocking effect (led by trade buying linked to tariff uncertainty) might not fully unwind in Q425 as ongoing uncertainty around tariffs remains. China: The company flagged no real change in underlying consumer demand which still remains week. Moreover, Pernod Ricard noted that it would expect the Q425 decline in China to be steeper than in Q3 (-5%), which benefitted from easier comps and some phasing ahead of a price increase. India: Pernod Ricard commented that while some of the technical effects seen in Q325 have reversed in Q4 (such as the shutdown in some local production sites), there will still be some ongoing impact from the new customs clearance procedures which also impacted Q3 LFL sales in India. RoW: Pernod noted that while trends have been solid to strong in...
What happened? We have received the latest NABCA Spirits industry data, which measures on and off-trade Spirits sales in 17 control states in the US. Control jurisdictions represent c.25% of the US Spirits market. Our key takeaways for the month of May 2025 are below. Please let us know if you would like to see out NABCA database. BNPP Exane View: Industry perspective: control states On a reported basis, spirits industry volumes declined by -4.2% in the control states in May. On a selling day adjusted basis, we estimate May spirits industry volumes in the control states declined by -1.0%, a moderation from April (0.0%) which was supported by the later timing of Easter. Excluding Cocktails (+26% in May), we estimate core spirits industry volumes declined -3.3% on a selling-day adjusted basis in the month, a sequential moderation from -1.6% in April, but an improvement from February (-4.1%) and March (-5.3%). Note: Overall, we estimate there was a -3.2% negative selling day impact YOY across the control states in May. We have not yet received the price / mix figures for May from NABCA. Company perspective Disclaimer: The company data is based upon reported volumes (incl. Cocktails) and this reflects calendar anomalies. Disclaimer made, Diageo reported volumes declined by -7.0% in May. We note that Diageo saw declining trends in reported volumes across all categories with the exception of Tequila (+7.1%) which continued to outperform the category (-0.5%). Pernod Ricard volumes declined by -5.4% on a reported basis in May. By category, Pernod Ricard volumes continued to be supported by strong growth in Cocktails (+8.2%), as well as growth in Cognac/Brandy (+44%) and Scotch (+2.2%) while Pernod''s other major sub-categories remained in decline. Campari reported volumes declined by -2.6%...
What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 14th June 2025 (''May/June''). Note, within this report we refer primarily to ''core spirits'' trends which excludes the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. BNPP Exane View: US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -2.9% in the latest 4-week period to 14th June, very modestly ahead of the -3.3% in the prior 4 weeks to leave QTD at -3.1% (cf. Q1 -2.4%, Q4 -1.5%). We estimate core spirits volumes declined by -3.7% to leave QTD at -3.8% (cf. Q1 -3.3%, Q4 -3.1%) while price/mix growth at +0.8% was in-line with recent trend (QTD +0.8%; Q1 +0.9%, Q4 +1.6%). Including Cocktails/Spirits-based RTDs, US industry off-trade sales declined by -0.1% in the latest 4 weeks to leave QTD at -0.2% (cf. Q1 flat, Q4 +0.8%), with volumes +2.4% to leave QTD at +2.6% (cf. Q1 +2.1%; Q4 +2.6%). From a sub-category perspective, we note that Cocktails (+14.3%) and Cordials (+3.1%) continued to be the only categories with value growth in positive territory in May / June (Tequila retail sales declined -1.2%). Company Summary Diageo core spirits retail sales declined by -2.5% in the latest period, a small improvement from May (-2.8%) to leave QTD at -3.4% (cf. Q1 -2.3%, Q4 +2.0%). Crown Royal brand sales returned to growth over the last 4-weeks (+1.3%) driven by Blackberry (+143%) to leave QTD at -3.0% (cf. Q1 -4.2%, Q4 +12.9%). Don Julio off-trade sales growth remains strong at +13.9% but decelerated further (on increasingly challenging comps) to leave QTD at +18.6% (Q1...
GBL is shifting its portfolio towards private investments Groupe Bruxelles Lambert (GBL), Pernod Ricard''s largest non-family shareholder with a c.6.8% equity stake (c.11.3% of voting rights), is in the midst of a strategic shift. With GBL shares trading at a material (c.40%) discount to NAV, the group intends to shift its portfolio toward private investments and increase cash returns to its shareholders, funded primarily by disposal of its listed assets. The recently appointed GBL Managing Director is a 25-year KKR / PE veteran In Mar-2025, Johannes Huth became the new MD of GBL. Mr. Huth has spent the last 25-years at KKR and our Div. Fins. team believe his arrival could accelerate the shift toward private investments. GBL anticipates EUR5bn of disposals between FY24-27 and has EUR2.6bn out of this remaining. Even a trimming of the Pernod Ricard stake could likely trigger market concern GBL''s Pernod Ricard stake (valued at c.EUR1.6bn) is its 2nd largest public investment and accounted for c.11% of the total GBL portfolio at the end of cal. Q125. GBL has already recently reduced its stakes in its #1 (SGS) and (then) #3 (Adidas) public holdings. At a time when structural questions hang over spirits / alcohol demand, we suspect even a trimming of the Pernod stake by a key long-term holder would be taken as a negative signal for the outlook for the business by the market. Any remaining stake would also potentially leave an overhang on the stock. GBL (+): funding dividend growth will require asset sale likely in listed stakes GBL has also committed to grow its DPS from a base of EUR5.0/s which according to our calculation should require further asset sale. This also supports the case for disposal of the most liquid stakes. Pernod Ricard (=): we continue to see catalysts as negatively skewed but the stock is cheap We continue to see a lack positive catalysts at Pernod Ricard and now elevated disposal risk from a long-term holder. However, the stock is...
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What happened? We have received the latest Cognac shipment data from BNIC for May 2025. While we make our usual caution on not reading too much into short-term trends (which can be very volatile), our key takeaways are below. BNPP Exane View: Cognac shipment volumes out of the Cognac region declined by -10% in May, a relative slowdown following strong YoY growth in March (+15%) and April (+10%), leading to Q225TD +1% (cf. Q1 -14%, Q4 +9%, Q3 +2%, Q2 -16%). Looking at trends relative to a pre-pandemic (2019) base, May-25 shipments were -52% below (vs. -27% in April), leading to Q225TD -40% (cf. Q1 -24%, Q4 -14%, Q3 -29%, Q2 -34%). Global Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane NAFTA Cognac shipments to the NAFTA region remained in growth in May, growing by +4% YOY in the month (cf. Apr +13%, Mar +49%) leading to Q225TD overall +9% (Q1 +1%, Q4 +37%, Q3 +4%, Q2 +20%). Compared with 2019 levels, NAFTA May-25 shipments were -54% below (cf. Apr -34%, Q1 -22%, Q4 -2%, Q3 -48%, Q2 -46%) leading to Q2TD -45%. NAFTA Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Far East Cognac shipments to the Far East region declined by -26% in the month (vs. Apr +9%), leading to Q225TD -5% (cf. Q1 -44%, Q4 -31%, Q3 -12%, Q2 -41%). Compared with 2019 levels, Far East May-25 shipments were -63% below (vs. Apr -27%), leading to Q2TD -45% (cf. Q1 -38%, Q4 -44%, Q3 -16%, Q2 -31%). Far East Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Europe Cognac shipments to the Europe region declined -15% in May (vs. Apr +23%), which led to Q225TD shipments +2% (cf. Q1 -21%, Q4 +4%, Q3 +15%, Q2 -22%). Compared with 2019 levels, Europe shipments declined by -34% in May (vs Apr -27%), leading to Q2TD -31% (cf. Q1 -37%, Q4 -13%, Q3 -10%, Q2 -25%). By Quality By quality, VS shipments out of the Cognac region declined by -7% in May (vs. Apr +19%), leading to +8% for Q225TD (cf. Q1 -14%, Q4 +23%, Q3 +24%, Q2 +2%). VSOP shipments declined by...
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What happened? We have received the latest Nielsen retail off-trade data for the Western European spirits industry, covering the four weeks to 18/05/2025 (''April/May''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country.... etc. BNPP Exane View: Industry perspective Overall spirits industry sales declined by -8.0% in the 4 weeks to 18th May, a sequential deceleration from +1.1% growth in April, driven by volume declines of -9.4% (vs. +0.3% in the prior 4 weeks), partially offset by price/mix of +1.6% (vs. +0.8% in the prior 4 weeks). By market, declining volumes were primarily led by Germany (-16.7%), but also by softer trends in GB and France. Company summary Diageo off-trade spirits sales declined by -9.9% in the latest 4 weeks, compared to -2.3% in the prior period, with volumes declining by -13.6% (vs. April -3.8%), partially offset by price/mix (+4.3% vs. April +1.6%). By region, Germany was the biggest driver of Diageo''s softer performance, with GB also sequentially weaker than April. Pernod Ricard sales declined by -7.0% in the latest 4 weeks, a deceleration from +1.9% in prior period, driven by volumes (-8.0% vs. April +2.7%) partially offset by improved price/mix (+1.1% vs. April -0.8%). By region, Pernod''s declining volumes were primarily led by weakness in Germany. Campari''s sales declined by -7.9% in the latest 4 weeks, a sequential deceleration from +10.3% in April, driven by declining volumes (-8.6% vs. April +12.0%), partially offset by price/mix (+0.8% vs. April -1.6%). By market, Campari''s volume declines were driven by Germany as well as a deceleration in GB. Remy Cointreau sales declined by -6.2% in the latest 4 weeks, a deceleration from April (-3.3%), as improved volumes (+0.7% vs. April -6.3%) were offset by price/mix (-6.8% vs. April +3.2%). Summary /
What happened? Local press (e.g. Hindustan Times) has reported that the Maharashtra government (home to the city of Mumbai) has increased the state excise tax on liquor (including Indian-made foreign liquor (IMFL), imported premium liquor and country liquor) by over 50%. The excise duty on beer and wine has not been altered. BNPP Exane View: Maharashtra is one of the largest states for alcohol consumption in India (around 18% national share). Local press is reporting that the tax hikes will increase the tax on IMFL from 3.5x manufacturing cost to 4.5x driving an increase in retail prices from a current range of INR120-150 for 180ml up to a minimum of INR205. For premium brands the retail price will reportedly increase from the current INR210-330 (per 180ml) range to a minimum of INR360. By contrast, the absolute increase in the cost of lower-end country liquor (which both Diageo and Pernod Ricard have little exposure to) is relatively small from INR70 to INR80 (per 180ml). For context, in FY24 we estimate India overall accounted for c.12% of sales / c.9% of EBIT at Pernod Ricard and c.7% / c.3% of EBIT at Diageo. India is relatively small for both Campari and Remy Cointreau. We expect news of the excise tax hike to drive modest negative share price reactions (c.-1%) at both Pernod Ricard and Diageo this morning. We note that USL (Diageo''s India subsidiary) is trading down c.-7% today.
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What happened? The Chinese Ministry of Commerce has published a QandA between reporters and its spokesperson regarding talks between Minister Wang Wentao''s and EU Commissioner for Trade and Economic Security, Maros efčovič. Below we outline a translation of the key QandA regarding the EU Cognac anti-dumping investigation: Q: What are the new developments in the brandy anti-dumping case, and have China and the EU reached an agreement on the price commitment? We noticed that Minister Wang Wentao also met with French European and Foreign Trade Minister Delegate Franck Riester in Paris, did they discuss the case with the French side? A: Minister Wang Wentao and Commissioner efčovič had a friendly and candid exchange of views on the brandy case, and also briefly informed the French side of the relevant progress. Currently, French companies and related associations have proactively submitted price commitment applications to the Chinese side, and the Chinese investigating authorities have reached an agreement with them on the core terms of the price commitment. The Chinese side is reviewing the full text of the price commitment, and if the review is passed, it is planned to release the final ruling announcement containing the price commitment text before July 5. China has fully demonstrated its sincerity in resolving China-EU trade disputes through dialogue and consultation and also hopes that the European side will work with China to properly address China''s concerns and create conditions for further expanding China-EU cooperation. BNPP Exane View: Details of the price commitment are not yet available. While being forced to take up prices in the current very weak underlying demand context would be far from ideal, we nevertheless we view the development as a positive for names with China Cognac exposure given that: 1) the news appears to suggest tariffs can be avoided; 2) the price commitment terms were proactively submitted by the Cognac players /...
Initiate coverage of Pernod Ricard ADR With this report we initiate coverage of Pernod Ricard ADR, in coordination with our pre-existing coverage of Pernod Ricard. Converting our existing Pernod Ricard target price (EUR94) at the current EUR/USD spot rate, we initiate coverage of Pernod Ricard ADR with a Neutral rating and a target price of USD21.2 which is adjusted for the 5:1 ADR ratio (five Pernod Ricard ADRs represent one Pernod Ricard ordinary share). Our target price implies 13.8x CY25e P/E. Our latest research on Pernod Ricard can be found here: PERNOD RICARD: Q325 sales and 15 questions for management
What happened? We have received the latest NABCA Spirits industry data, which measures on and off-trade Spirits sales in 17 control states in the US. Control jurisdictions represent c.25% of the US Spirits market. Our key takeaways for the month of April 2025 are below. Please let us know if you would like to see our NABCA database. BNPP Exane View: Industry perspective: control states On a reported basis, spirits industry volumes grew by +3.3% in the control states in April. On a selling day adjusted basis, we estimate April spirits industry volumes in the control states grew by +0.7%. This marks a sequential improvement from March (-3.8%), which we expect is largely driven by the later timing of Easter (Easter fell on 31 March 2024 vs 20 April 2025). Looking at March/April-25 trends together, we estimate selling day adjusted industry volumes declined by -1.6% (vs. Feb -2.4%). Excluding Cocktails (+29% in April), we estimate core spirits industry volumes declined -0.9% on a selling-day adjusted basis in the month, a sequential improvement from -5.3% in March and -4.1% in February. Note: Overall, we estimate there was a +2.6% positive selling day impact YOY across the control states in April. We have not yet received the price / mix figures for April from NABCA. Company perspective Disclaimer: The company data is based upon reported volumes (incl. Cocktails) and this reflects calendar anomalies. Disclaimer made, Diageo reported volumes grew by +1.9% in April. We note that Diageo''s Rum portfolio was in growth (+3.3% vs. category -0.1%) supported by continued strength in Tequila (+21.8% vs. category +9.9%). Diageo''s April volumes declined for all other major sub-categories except Scotch (+0.6%) and Cordials (+0.8%) which were both in modest growth. Pernod Ricard volumes grew by +1.1% on...
What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 17th May 2025 (''May''). Note, within this report we refer primarily to ''core spirits'' trends which excludes the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. We note that the latest 4 weeks include Easter Sunday (Easter was on 20th April 2025), which fell into the prior 4-week period in the data last year (Easter was on 31st March last year). However given that the majority of the buying ahead of Easter likely occurs in the week before Easter rather than Easter Sunday itself, we would expect a broadly neutral impact from Easter timing on the latest 4-week data. BNPP Exane View US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -3.3% in the latest 4-week period to 17th May, slightly below -3.1% in the prior 4 weeks (vs. Q1 -2.4%, Q4 -1.5%). We estimate core spirits volumes declined by -4.1% (vs. April -3.8%, Q1 -3.3%, Q4 -3.1%), with price/mix +0.8% (vs. April +0.6%, Q1 +0.9%, Q4 +1.6%). Including Cocktails/Spirits-based RTDs, US industry off-trade sales declined by -0.3% in the latest 4 weeks (vs. April -0.4%, Q1 +0.0%, Q4 +0.7%), with volumes +2.6% (vs. April +2.4%). From a sub-category perspective, we note that Cocktails (+18.7%) and Cordials (+2.7%) saw retail value growth in May, while notably Tequila (-1.6%) turned negative for the first time in 2025. Company Summary Diageo core spirits retail sales declined by -3.2% in May, a modest recovery from April (-5.1%), however still sequentially weaker than prior quarters (Q1 -2.8%, Q4 +1.6%, Q3 +1.8%). The...
What happened? We have received the latest Nielsen retail off-trade data for the Western European spirits industry, covering the four weeks to 20/04/2025 (''April''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country.... etc. BNPP Exane View: Industry perspective Note: We note that the latest 4 weeks from 23rd March to 20th April includes both the impact from cycling the earlier timing of Easter from 31st March 2024 and the majority of the sell-out ahead of Easter this year (Easter was on 20th April 2025). However, we do note the strong performance from Chocolate category (+62.4% vs. -22.9% last month), suggesting an Easter benefit in the latest data. Overall spirits industry sales grew by +1.0% in the 4 weeks to 20th April, a sequential improvement from -5.8% declines in March and -0.9% in Q1, with the improvement driven by volumes (+0.2% vs. March -6.5%, Q1 -1.9%) while price/mix of +0.8% was unchanged sequentially. By market, the improved volumes were primarily led by GB and Germany, offsetting softer trends in Spain. Company summary Diageo off-trade spirits sales declined by -2.4% in the latest 4 weeks, compared to -6.6% in the prior period, with volumes declining by -4.0% (vs. March -9.1%, Q1 -1.7%), offset by price/mix (+1.6% vs. March +2.7%). By region, improved trends in GB were partially offset by softer volumes in the other tracked markets. Pernod Ricard sales grew by +1.9% in April, an improvement from -8.7% in March and -0.7% in Q1, driven by volumes (+2.8% vs. March -11.1%, Q1 -1.2%) while price/mix moderated (-0.8% vs. March +2.7%). By region, Pernod''s improved volumes were led by Germany and France. Campari''s sales grew by +10.2% in April, a sequential improvement from -8.3% in March, driven by a positive volume inflection (+12.0% vs. March -10.5%), while price/mix turned negative (-1.6% vs. March +2.4%). By market, Campari''s strong April growth was...
Exanimation Pernod Ricard''s CEO of North America, Conor McQuaid, hosted a QandA call this afternoon. We felt Pernod Ricard struck a more optimistic tone, noting green shoots as the US business continues to close the gap with the overall market, led by improving trends from Jameson and Absolut. Moreover, we were also struck by how much appears to have changed over the last 12 months, with a redesign of the portfolio strategy, price repositioning and ongoing state-by-state wholesaler review. Further points of colour below: QandA highlights . Pricing and affordability: Have done a significant amount of work on pricing in the last 18 months. Were very bold in pricing post-pandemic, but took a step back to reset the portfolio 12 months ago. Have resourced the revenue growth team to a greater degree to facilitate greater understanding, reactivity and greater post-event analysis. Important to be agile and make timely decisions. It has resulted in some strategic price repositions. Do believe that they now have the sharpest RGM capabilities that they have had for quite some time in the US. . Wholesaler review: Quite a bit of dynamism at the wholesaler tier in the US at the moment. Took the opportunity to do a full review of the portfolio by state, to make sure they have the right resources on a state-by-state basis. The power and explode brands (80% of sales in the portfolio) is where the bulk of the focus is. There are also additional brands which require extra resource to grow in the longer-term. Then there is also RTDs which require a different level of focus from wholesalers. Are in the final stage of discussions with wholesalers and the feedback on portfolio prioritisation has been positive. The KPIs that Pernod is giving wholesalers is also very clear, and that has been well received. . FY26 and green shoots: Were a 5pp gap to market a year ago, and now it is just 2pp on volume. On value, it was a 6pp gap a year ago and it is now just a 3pp gap. Want to...
What happened? The UK and India have agreed a Free Trade Agreement (FTA) according to a press statement from the Government of India Press Information Bureau. Our current understanding is that the Indian import tariff on Scotch (and other UK spirits) will reduce from its current level of 150% to 75% at outset of the FTA and will reduce further to 40% by year 10 of the deal. BNPP Exane View: In the figure below, we summarise estimated exposures to India for Diageo and Pernod Ricard in FY24. We estimate sales in India for Campari and Remy Cointreau are relatively small (1%). / Reflecting on the figure above, to our minds the biggest beneficiary of the new FTA is Pernod Ricard given it has the highest exposure to India and owns 100% of the equity in its subsidiary. We have previously explored the potential implications of a UK-India FTA (see India, the new China?) and summarise our main thoughts below: Very modest earnings impact near-term We would expect only a modest positive impact on near-term consensus earnings at both Diageo (+0-1%) and Pernod Ricard (+1-2%). This is for 3 main reasons: . Scotch is still relatively small: the majority of both Diageo and Pernod Ricard''s current India businesses are IMFL (Indian Whisky). Scotch accounted for c.9% of India retail sales at Pernod Ricard and c.16% at Diageo in 2023 (per IWSR). The Scotch Whisky Association has previously commented on its view that liberalisation of the Indian market could see Scotch Whisky''s market share treble, but only to 6%. Pernod Ricard and Diageo are the market leaders in both IMFL and Scotch in India. . Import tariffs have a smaller influence on the consumer-end price than local taxes: our understanding is that the current 150% import tariff typically accounts for c.15% of the end consumer price of imported spirits. This compares to c.33-34% from local taxes. . The immediate tariff reduction is to 75%: the immediate tariff reduction appears to be from 150% to 75%, and...
What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 19th April 2025 (''April''). Note, within this report we refer primarily to ''core spirits'' trends which excludes the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. We note that the latest 4 weeks from 23rd March to 19th April includes both the impact from cycling the earlier timing of Easter from 31st March 2024 and the majority of the sell-out ahead of Easter this year (Easter was on 20th April 2025). In other words, we would expect a broadly neutral impact from Easter timing on the latest 4-week data. BNPP Exane View US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -3.1% in the latest 4-week period to 19th April, broadly in-line with the -3.0% in the prior 4 weeks (vs. Q1 -2.5%, Q4 -1.5%). We estimate core spirits volumes declined by -3.7% (vs. March -3.6%, Q1 -3.3%, Q4 -3.1%), partially offset by price/mix +0.6% (vs. March +0.6%, Q1 +0.9%, Q4 +1.6%). Including Cocktails/Spirits-based RTDs, US industry off-trade sales declined by -0.4% in the latest 4 weeks (vs. March -0.3%, Q4 +0.7%, Q3 +1.8%), with volumes +2.4% (vs. March +2.3%). From a sub-category perspective, we note that Cocktails (+19.9%), Cordials (+2.7%) and Tequila (+0.9%) saw retail value growth in April, while all other categories declined. Company Summary Diageo core spirits retail sales declined by -5.1% in April, a modest improvement from March (-6.3%), however still sequentially weaker than prior quarters (Q1 -2.8%, Q4 +1.6%, Q3 +1.8%). The modest improvement in trend was largely driven...
What happened? We have received the latest NABCA Spirits industry data, which measures on and off-trade Spirits sales in 17 control states in the US. Control jurisdictions represent c.25% of the US Spirits market. Our key takeaways for the month of March 2025 are below. Please let us know if you would like to see out NABCA database. BNPP Exane View: Industry perspective: control states On a reported basis, spirits industry volumes declined by -4.0% in the control states in March. On a selling day adjusted basis, we estimate March spirits industry volumes in the control states declined by -3.7%. This marks a material deterioration in sequential trend (Feb was -2.4%). While this is likely partly explained by unfavourable Easter timing (Easter fell on 31 March 2024 vs 20 April 2025), we note that the comp. is not particularly challenging (Mar''24 vols -2.3%, Feb''24 vols -1.4%). The -3.7% decline in the month leaves Q1 industry vols (inc. Cocktails) at -2.1% (cf. Q4 +0.5%, Q3 -0.9%). Excluding Cocktails (+29% in March), we estimate core spirits industry volumes declined -5.1% on a selling-day adjusted basis in the month, a sequential deceleration from -4.1% in February to leave Q1 at -3.6% (cf. Q4 -1.4%, Q3 -2.6%). Note: Overall, we estimate there was a modest (-0.3%) negative selling day impact YOY across the control states in March. We have not yet received the price / mix figures for March from NABCA. Company perspective Disclaimer: The company data is based upon reported volumes (incl. Cocktails) and this reflects calendar anomalies. Disclaimer made, Diageo reported volumes declined by -8.3% in March. We note that Diageo''s Canadian Whisky volumes declined -18.9% (cf. category -10.5%) which was partly offset by continued strength in Tequila (+17.6% vs. category +3.4%). Diageo March...
What happened? We have received the latest Nielsen retail off-trade data for the Western European spirits industry, covering the four weeks to 23/03/2025 (''March''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country.... etc. BNPP Exane View: Industry perspective Note: the latest 4-week data to the 23rd March may be negatively impacted from a modest headwind from Easter calendar shift (Easter fell on 31 March 2024 vs 20 April 2025), however, offsetting this we also note that weather sensitive Food and HPC categories appeared to have been strong in the month, particularly in Northern Europe (e.g. Ice Cream +10.7% from +3.1% last month, Mineral Water +7.0% from +4.1%, Sun Care +10.1% from +1.1% and Deodorant +4.6% from -0.5%). Overall spirits industry sales declined by -5.8% YoY in the 4 weeks to 23rd March, a deceleration from -5.5% in the prior 4 weeks (vs. Q125 -0.9%, Q4 -5.1%), with volumes declining by -6.7% YoY in March, compared with -6.6% in the prior 4-week period (vs. Q125 -2.1%, Q3 -6.3%). Industry price/mix for March was +0.9% (vs. prior 4 weeks +1.2%, Q125 +1.1%, Q4 +1.2%). Company summary Diageo off-trade spirits sales declined by -6.8% in the latest 4 weeks, compared to -3.7% declines in the prior 4 weeks leading to Q125 -0.1% (vs. Q4 -6.5%, Q3 -1.7%), with March volumes declining by -9.1%, a sequential deceleration from the prior 4 weeks (-4.5%), but partially offset by improved price/mix (+2.6% in March vs. +0.8% in the prior 4 weeks). Diageo underperformed in the industry in all major tracked European markets in March. Pernod Ricard sales declined by -8.5% in March, a deceleration from -6.1% declines in the prior 4 weeks, leading to Q125 -0.6% (vs. Q4 -6.2%, Q3 -0.6%). Volumes declined by -11.0% in March, compared to -5.9% in the prior 4 weeks (vs. Q125 -1.2%, Q4 -6.7%, Q3 -0.3%). By region, Pernod Ricard''s weaker volume trends were driven by Germany...
Summary of Q325 sales Pernod Ricard Q3 LFL sales declined -3.2%, a small miss vs. consensus expectation (co. cons. -2.0%) which was primarily driven by Europe (-6.8% vs. co. cons. -0.1%). Excluding both positive (wholesaler stocking ahead of tariff announcements which contributed to +2% LFL sales growth in the US) and negative (India customs clearance procedures / temporary production interruption; very high GTR comps; and Easter timing) phasing technicalities, Pernod Ricard estimates the Q3 LFL sales decline would have been -2.1%. Pernod Ricard announced an interim dividend of EUR2.35 (equal to 50% of the PY FY divi, in-line with its policy). News We highlight that while Pernod Ricard does not expect a significant change in its underlying performance in Q4, given the reversal of technical phasing impacts, it sees Q4 LFL sales as likely being in modest growth. Earnings We revise our FY25e/FY26e/FY27e EPS by c.+1% / c.-1% / c.-1%. Investment thesis While Pernod Ricard is cheap, we struggle to envisage a near-term recovery in the stock''s valuation. Rating and target price We maintain our Neutral rating. Our target price moves from EUR95 to EUR94. 15 questions for management Do you see the expected sequential improvement in your group organic sales growth in FY26 (vs. FY25) as being primarily driven by volumes or price / mix?
BNPP Exane view To our mind the main points of note from the call were that ex. both positive (US wholesale stocking) and negative (India customs / production disruption; v. high GTR comps; Easter timing) technical phasing impacts Q3 LFL sales would have declined -2.1%. Underlying performance in Q4 is not expected to change significantly but bearing in mind reversal of the above impacts, Pernod Ricard sees group LFL sales in Q4 as probably being in modest growth (Q4 implied co. cons +1.2%; BBG cons. -0.5%). With FY26 guidance for an improvement in organic sales growth also re-iterated, we found the call directionally re-assuring. As to the shares, the broadly flat reaction feels fair to us. Highlights: QandA . Europe: re-iterate that see resilience in Europe with growth in significant markets such as France and UK. Q3 was more challenging in Spain saw a robust decline and in Germany the macro environment in challenging and a very high comps (+36%) with some technicalities in the base with some stock replenishment. A reminder that Q3 is a very small quarter in Europe. . US shipment phasing: sell-out is c.-6% volumes, c.-5% in value. Difficult to be precise on what to expect in Q4 as inventory might continue to be impacted by tariff uncertainty. From a sell-out perspective continue to close the gap with the market and expect that to continue in Q4 with exciting brand activations to come (e.g. around Father''s day and festivals such as Coachella). . Tariff impact on PandL: in FY25 the main impact of tariffs is in China. . Q3 phasing: adjusting Q3 numbers for all technicalities group LFL sales would have been c.-2% so slightly better than Q2. 2/3rd of business is growing in H1 and Pernod Ricard expect Q4 LFL sales to probably be in modest growth. . FY26: re-iterate expect improvement in organic sales growth next year. . India: underlying performance remains strong and the portfolio is well positioned. Expect solid growth this year. . Inventories:...
BNPP Exane View Q3 LFL sales is a modest miss (-3.2% vs. co. cons. -2.0%), FY25 guidance remains unchanged, and the interim dividend has not been cut. On the surface, keeping in mind the very negative sentiment on the shares / cheap valuation, this looks good enough to potentially lead to a meaningful positive relief rally. However, the mix of the Q3 sales growth is disappointing: Europe is very weak and the beat in the US likely flattered by wholesaler stocking ahead of tariff announcements. There is no mention of a reversal of US wholesaler stocking in Q4, so while FY25 guidance has been held this may lead some to question whether FY26 will be impacted by the reversal. Overall, while we find the substance of the update underwhelming, we think this could still be okay enough to see a modest positive share price reaction today. Q325 headline metrics . Q3 LFL: -3.2% (co. cons: -2.0%; BBG cons. -0.8%) . Interim dividend: EUR2.35 (50% of PY FY as per policy) Top-line drivers Scanning the Q3 top-line drivers by region, we note that the Q3 miss was driven primarily by Europe (-6.8% vs. co. cons. -0.1%), driven by declines in Germany and impacted by later Easter timing in Spain. Asia/RoW (-5.6% vs. co. cons. -3.9%) was also below consensus expectation. This was partially offset by a beat in the Americas (+3.5% vs. co. cons. -0.8%), led by +2% growth in the US which saw sell-in ahead of sell-out supported by wholesaler stocking ahead of tariff announcements. Bottom-line drivers N/A - only a sales update. Other metrics . US: US H1 LFL sales grew +2% (H1 -10%; co. cons. -1.4%). Pernod Ricard comments on improving performances on Jameson, Absolut and Kahlua. . China: China LFL sales declined -5% in Q3 (H1 -25%; co. cons. -10.6%). Pernod Ricard comments on CNY being very soft, as expected. A +MSD price increase was taken on Martell in February. . India: India LFL sales grew +1% in Q3 (H1 +6%; co. cons. +2.8%). Pernod Ricard comments on softer Q3 due in...
What happened? We have received the latest Cognac shipment data from BNIC for March 2025. While we make our usual caution on not reading too much into short-term trends (which can be very volatile), our key takeaways are below. BNPP Exane View: Cognac shipment volumes out of the Cognac region grew by +15% in March, a material recovery from prior months (cf. Feb -36%, Jan -24%) leading to Q125 -14% (cf. Q4 +9%, Q3 +2%, Q2 -16%). Looking at trends relative to a pre-pandemic (2019) base, Mar-25 shipments were +7% ahead, leading to Q125 -24% (cf. Feb -41%, Jan -39%, Q4 -14%, Q3 -29%, Q2 -34%). Global Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane NAFTA Cognac shipments to the NAFTA region saw a material recovery in March; growing by +49% YOY in the month (cf. Feb -37%, Jan -16%, Q4 +37%, Q3 +4%, Q2 +20%) leading to Q125 overall +1%. Compared with 2019 levels, NAFTA Mar-25 shipments were +16% ahead (cf. Feb -51%, Jan -37%, Q4 -2% Q3 -48%, Q2 -46%) leading to Q1 -22%. While we caution on reading too much into monthly trends which can be very volatile in the BNIC data, we suspect that NAFTA shipments might have seen some inventory stocking ahead of the expected Liberation Day tariff announcement on 2nd April. For context, we note that Mar-25 saw the largest absolute level of monthly shipments since Sep-22. NAFTA Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Far East Cognac shipments to the Far East region declined by -18% in the month, leading to Q125 -44% (cf. Feb -59%, Jan -54%, Q4 -31%, Q3 -12%, Q2 -41%). Compared with 2019 levels, Far East Mar-25 shipments were -14% below, leading to Q125 -38% (cf. Feb -47%, Jan -54%, Q4 -44%, Q3 -16%, Q2 -31%). Far East Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Europe Cognac shipments to the Europe region declined -14% in March which led to Q125 shipments -21% (cf. Feb -16%, Jan -36%, Q4 +4%, Q3 +15%, Q2 -22%). Compared with 2019 levels, Europe shipments declined by...
We have adjusted our estimates for modest operational tweaks, primarily related to fiscal Q3 / Q4 organic sales growth phasing and updated FX. We do not consider the changes to be material; our target price and rating are unchanged.
What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 22nd March 2025 (''March''). Note, within this report we refer primarily to ''core spirits'' trends which exclude the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. We suspect the potential negative impact of Easter shift on the last 4-week read is likely to be modest (given that Easter landed on 31 March in the base and this data is to 22 March and we are looking at sell-out trends). BNPP Exane View US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -3.1% in the latest 4-week period to 22nd March, a modest improvement from February (-3.7%), leading to Q125 overall retail sales declines of -2.5% (vs. Q424 -1.5%, Q3 -0.4%). We estimate core spirits volumes declined by -3.7% in the latest 4 weeks (vs. -4.1% in February) leading to Q1 volume declines of -3.3% (vs. Q4 -3.1%, Q3 -2.4%), while price/mix of +0.6% was broadly unchanged vs. the prior month. Including Cocktails/Spirits-based RTDs, US industry off-trade sales declined by -0.3% in the latest 4 weeks (vs. Feb -1.6%) leading to Q125 sales declines of -0.1% (vs. Q4 +0.7%, Q3 +1.8%), with the improvement driven by volumes (+2.2% vs. Feb +0.3%). From a sub-category perspective, we note that Cocktails (+22.1%) and Tequila (+2.4%) saw retail value growth in March, while all other categories declined. Company Summary Diageo core spirits retail sales declined by -6.3% in March, a further deceleration from February (-4.7%), widening the gap with the industry, leading to Q125 sales declines of -2.8% (vs. Q4 +1.6%,...
What happened? We recently caught up with Pernod Ricard ahead of its closed period (it reports Q325 sales on 17th April) to get an update on what the company has been saying to investors over recent weeks. Pernod Ricard reiterated its FY25 outlook. BNPP Exane View: Overall, we felt the tone was somewhat cautious with respect Q3 organic sales albeit primarily driven phasing effects (colour below) between Q3 and Q4. Overall, we would not be surprised to see consensus Q3 organic sales growth expectation reduce to a modestly negative development (cf. BBG cons. +1.0%). Points of colour below: Phasing effects: Q325 organic sales growth is likely to be negatively impacted by phasing effects from a combination of the de-listing of Martell (Cognac) in China Duty-Free (which is more skewed to Q3); the impact of a new automated customs clearance procedures in India; Easter phasing (particularly in some markets in Europe, like Spain); and very elevated comps. in Japan (c.+40% in Q324). Partially offsetting this, it is conceptually possible that wholesalers in the US have stocked in anticipation of possible tariff increases. US: Spirits industry sell-out trends remain below historical norms. but remain in modest positive territory in RTDs. Pernod Ricard continues to see a shallowing of the gap between its sell-out trends vs. the industry (i.e. share trends are improving) and sell-in will face a sequentially easier comp. in H2 vs. H1. China: While there has been no change in Pernod Ricard''s expectations for China vs. that shared with H125 results and the macro remains weak, the company noted it has a considerably easier comp. in Q3 (vs. both H1 and Q4). India: Q3 will face the above-mentioned phasing impact from the new customs duty clearance procedure but underlying momentum in India remains strong and the market continues to see broad based growth.
What happened? We have received the latest NABCA Spirits industry data, which measures on and off-trade Spirits sales in 17 control states in the US. Control jurisdictions represent c.25% of the US Spirits market. Our key takeaways for the month of February 2025 are below. Please let us know if you would like to see out NABCA database. BNPP Exane View: Industry perspective: control states On a reported basis, spirits industry volumes declined by -4.4% in the control states in February. On a selling day adjusted basis, we estimate February spirits industry volumes in the control states declined by -2.2% (cf. Jan +0.1%, Q4 +0.5%, Q3 -0.9%). Excluding the impact of Cocktails (+31% in February), we estimate core spirits industry volumes declined -3.9% on a selling-day adjusted basis, a sequential deceleration from -1.4% in January and Q4 (-1.3%). Note: Overall, we estimate there was a -2.2% negative selling day impact YOY across the control states in February as the month cycles the additional day from the leap year in 2024 leading to 9 fewer selling days overall. We have not yet received the price / mix figures for February from NABCA. Company perspective Disclaimer: The company data is based upon reported volumes (incl. Cocktails) and this reflects calendar anomalies. Disclaimer made, Diageo reported volumes declined by -5.8% in February. Diageo''s deceleration versus the industry was mainly driven by a slowdown in Tequila (vols +10.3% vs. category +0.1%) and Canadian Whisky (-5.4% vs. category -6.1%), while Cocktails remained in growth (+9.1%) but below the overall category (+31%). All other categories were in decline in February. Pernod Ricard reported volumes declined by -3.4% on a reported basis in February, ahead of the industry. Strong growth in Cocktails (+22.9%) was supported by...
What happened? We have received the latest Nielsen retail off-trade data for the Western European spirits industry, covering the four weeks to 23/02/2025 (''February''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country....etc. BNPP Exane View: Industry perspective Note: Due to calendar shift between the two prior 4-week releases, in this note we will compare the latest data to the prior 8 weeks (i.e. the December and January releases taken together) to smooth out the calendar shift between them. We also note that the latest 4-week data to the 23rd February should be unaffected by calendar shift. Overall spirits industry sales declined by -6.1% in the 4 weeks to 23rd February, a deceleration from -1.9% in the prior 8 weeks (vs. November -4.0%, Q3 -1.6%), with volumes declining by -7.1% in February, compared with -3.1% in the prior 8-week period (vs. November -4.3%, Q3 -3.2%). Industry price/mix for February was +1.0% (vs. prior 8 weeks +1.2%, Nov +0.3%, Q3 +1.6%). Company summary Diageo off-trade spirits sales declined by -4.6% in the latest 4 weeks, compared to -3.1% declines in the prior 8 weeks (vs. Nov -5.4%, Q3 -1.6%), with February volumes declining by -5.4%, a modest improvement compared with the prior 8 weeks (-5.7%), but more than offset by a price/mix deceleration (+0.9% in February vs. +2.7% in the prior 8 weeks). Diageo outperformed in the industry in Germany, France and Italy in February. Pernod Ricard sales declined by -6.7% in February following -1.6% declines in the prior 8-week period (vs. Nov -3.8%, Q3 -0.6%). Volumes declined by -6.5% in February, compared to -1.3% in the prior 8 weeks (vs. Nov -4.3%, Q3 -0.3%). By region, Pernod Ricard''s weaker volume trends were driven by Germany and Spain, while the company outperformed in a declining market in France. Campari''s sales declined by -5.2% in February, a sequential slowdown following +5.5% in...
What happened? We have received the latest Cognac shipment data from BNIC for February 2025. While we make our usual caution on not reading too much into short-term trends (which can be very volatile), our key takeaways are below. BNPP Exane View: Cognac shipment volumes out of the Cognac region declined by -36% in February (cf. Jan -24%) marking another step down in trend (cf. Q4 +9%, Q3 +2%, Q2 -16%). Looking at trends relative to a pre-pandemic (2019) base, Feb-25 shipments were -41% below (cf. Jan -39%, Q4 -14%, Q3 -29%, Q2 -34%). Global Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane NAFTA Cognac shipments to the NAFTA region declined -37% YOY in February (cf. Jan -16%, Q4 +37%, Q3 +4%, Q2 +20%). Compared with 2019 levels, NAFTA Feb-25 shipments were -51% below (cf. Jan -37%, Q4 -2% Q3 -48%, Q2 -46%). NAFTA Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Far East Cognac shipments to the Far East region declined by -59% in the month (cf. Jan -54%, Q4 -31%, Q3 -12%, Q2 -41%). Compared with 2019 levels, Far East Feb-25 shipments were -47% below (cf. Jan -54%, Q4 -44%, Q3 -16%, Q2 -31%). Far East Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Europe Cognac shipments to the Europe region declined -16% in February (cf. Jan -36%, Q4 +4%, Q3 +15%, Q2 -22%). Compared with 2019 levels, Europe shipments declined by -35% this month (cf. Jan -58%, Q4 -13%, Q3 -10%, Q2 -25%). By Quality By quality, VS shipments out of the Cognac region declined -37% (cf. Jan -13%, Q4 +23%, Q3 +24%, Q2 +2%). VSOP shipments declined -40% (cf. Jan -39%, Q4 -8%, Q3 -13%, Q2 -26%). Finally, XO shipments declined -10% this month (cf. Jan -38%, Q4 -9%, Q3 -25%, Q2 -47%).
What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 22nd February 2025 (''February''). Note, within this report we refer primarily to ''core spirits'' trends which excludes the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. BNPP Exane View US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -3.7% in the latest 4-week period to 22nd February, a sequential slowdown from -1.5% in Q4. We estimate core spirits volumes declined by -4.1% in the latest 4 weeks (vs. -3.0% in Q4), while price/mix has moderated to +0.4% in the latest 4 weeks (from +1.6% in Q4). Including Cocktails/Spirits-based RTDs, US industry off-trade sales declined by -1.6% in the latest 4 weeks (vs. Q4 +0.7%), with the deceleration driven by weaker volumes (+0.3% vs. Q4 +2.6%). From a sub-category perspective, we note that Cocktails (+16.6%), Cordials (+1.1%) and Tequila (+0.4%) saw retail value growth in February, while all other categories declined. Company Summary Diageo core spirits retail sales declined by -4.7% in February, a material deceleration from Q4 +1.6% and Q3 +1.8%, with the deceleration driven by weaker volumes (-6.0% vs. Q4 -2.0%) and price/mix (+1.4% vs. Q4 +3.6%). While Don Julio''s strong growth trends continued (+29.2% in February), we note that the negative inflection in Diageo''s February trends was mainly driven by Crown Royal (-7.8% vs. Q4 +12.9%) as it cycled the launch of Crown Royal Blackberry from 2024. Crown Royal Blackberry saw February sales -8.0% YoY. We also note that the CR Blackberry extension is accretive to Diageo...
What happened? We have received the latest NABCA Spirits industry data, which measures on and off-trade Spirits sales in 17 control states in the US. Control jurisdictions represent c.25% of the US Spirits market. Our key takeaways for the month of January 2025 are below. Please let us know if you would like to see out NABCA database. BNPP Exane View: Industry perspective: control states On a reported basis, spirits industry volumes grew by +0.4% in the control states in January. On a selling day adjusted basis, we estimate January spirits industry volumes in the control states grew by +0.1% (cf. Dec -1.0%, Q4 +0.5%, Q3 -0.9%). Excluding the impact of Cocktails (+35% in January), we estimate core spirits industry volumes declined -1.4% on a selling-day adjusted basis, a modest sequential improvement from -2.3% in December but broadly in-line with Q4 (-1.3%). Note: Overall, we estimate there was a +0.3% positive selling day impact YOY across the control states in January (with 3 additional selling days in New Hampshire). We have not yet received the price / mix figures for January from NABCA. Company perspective Disclaimer: The company data is based upon reported volumes (incl. Cocktails) and this reflects calendar anomalies. Disclaimer made, Diageo reported volumes grew by +1.8% in January as it continues to outperform the industry. Diageo''s outperformance continues to be driven by Tequila (vols +25.5% vs. category +7.3%), Canadian Whisky (+8.2% vs. category -2.2%) and solid growth in Cocktails which more than offset weaker trends across all other categories. Pernod Ricard reported volumes grew by +1.9% on a reported basis in January, ahead of the industry. Strong growth in Cocktails (+54.9%) was further supported by solid growth in Scotch (+8.4%), Vodka (+4.5%), Cordials (+5.4%) and...
What happened? SipSource, the data and insight provider owned by the Wine and Spirits Wholesalers of America (WSWA), yesterday published its year-end report for 2024 and outlook for 2025. SipSource data represents over 60% of US wholesale Wine and Spirits depletions (without extrapolation) and it claims to be the most reliable predictor of market trends in the US spirits industry. BNPP Exane View: Below we highlight some observations that caught our eye in the SipSource report: . 2024 depletions: SipSource estimates US spirits industry (inc. RTD) volume depletions declined -3.7% in 2024 (cf. -3.6% in 2023) while value depletions declined -4.3%. Excluding pre-mix cocktails / RTDs, core US spirits volume depletions declined -4.3% (cf. -5.1% in 2023). SipSource states that its 2024 prediction was 94% accurate for core spirits. . 2025 forecasts: SipSource expects (if everything stays the same i.e. the current trade policy continues) 2025 could be a ''year of stabilisation in negative territory'' with minimal fluctuation expected across major categories. Stabilisation in 2025 is expected to pave the way for improved momentum in 2026. We would note that it is not clear if this forecast is just for spirits or wine and spirits combined. . Consumer behaviour: ''Unlike previous cycles where volume shifted between categories, the overall decline signals a broader challenge facing the industry - changing consumer behaviors trending away from alcohol consumption.'' SipSource believes ''Shifting lifestyle choices - including the rise of moderation and abstinence trends - are reshaping consumption patterns. Additionally, the industry is facing competition from alternative adult beverages like energy drinks, botanical-infused drinks, and hemp-derived products, which are increasingly winning traditional alcohol consumption occasions''. . 2025 by sub-category: SipSource expects Tequila to face growth uncertainty, particularly if new tariffs are introduced. US Whiskey and...
What happened? We have received the latest Nielsen retail off-trade data for the Western European spirits industry, covering the four weeks to 26/01/2025 (''January''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country etc. BNPP Exane View: Industry perspective Note: the rebound in alcohol industry sell-out growth YOY per this month''s update is likely materially flattered by calendar shift (mirroring the negative impact in last month''s release). This month''s data (to 26-Jan-2025) includes the 30/31st Dec (i.e. the key days for alcohol buying ahead of New Year''s Eve) which are not included in the base period (data to 28-Jan-2024). Overall spirits industry sales grew by +9.9% in the 4 weeks to 26th January following -7.5% declines in the 4 weeks to 29th December, with both periods impacted by the timing of New Year''s Eve. Looking at the last 8-week period, overall spirits industry sales declined by -1.9% (vs. November -4.0%, Q3 -1.5%), with volumes for the latest 8-weeks -3.1% (vs. November -4.2%, Q3 -3.1%). Industry price/mix for the latest 8 weeks was +1.2% (vs. Nov +0.2%, Q3 +1.6%). Company summary Diageo off-trade spirits sales grew by +11.6% in the latest 4 weeks or -3.1% in the latest 8 weeks (vs. Nov -5.4%, Q3 -1.6%), with volumes in the latest 8-week period declining by -5.7% (vs. Nov -4.0%, Q3 -4.1%). Pernod Ricard sales grew by +15.3% in January but declined by -1.6% in the latest 8 weeks (vs. Nov -3.7%, Q3 -0.3%). Volumes grew by +16.3% in the latest 4-week period but declined by -1.4% in the latest 8 weeks (vs. Nov -4.4%, Q3 flat). Campari''s sales grew by +22.4% in the latest 4 weeks but grew by +5.9% over the latest 8-week period (vs. Nov +7.1%, Q3 +4.2%) driven by volume growth in the latest 8 weeks of +8.7% (vs. Nov +11.4%, Q3 +3.9%). Remy Cointreau sales grew by +14.9% in the latest 4 weeks by declined by -1.1% in the latest 8 weeks (Nov -0.7%, Q3...
What caught our eye in the 2024 DISCUS data This week DISCUS (the Distilled Spirits Council of the United States) released its estimates for 2024 US Spirits supplier shipments, the most detailed data currently available on the industry in 2024. There is much concern about a 50% EU tariff on US Whiskey While not a data observation, as things stand the EU will impose a 50% tariff on US Whiskey from 1 April 2025 which is a great concern for DISCUS. For the EU Distillers, the bigger worry is the higher risk of a tit-for-tat tariff on EU spirits by the US in response with Remy Cointreau the most exposed. Observation 1: Core spirits US supplier volumes declined -3.0% (revenues -2.6%) Core spirits (ex. Cocktails / RTD) US supplier volumes declined -3.0% in 2024 with price / mix ahead +0.4%. This brings the industry post-pandemic (2020-24) volume growth CAGR (which includes the impact of consumer and trade destocking) to +0.5% and price / mix CAGR to +2.9%. Observation 2: Super-premium brands remained under pressure Super-premium brand volumes declined -4.8% (below the industry) but there was not a clear downtrading trend overall and Super-premium vols remain the highest growth price-tier vs. 2019. Observation 3: Value price tier Tequila gained share of category for the first time in a decade Value Tequila vols grew +11% (cf. overall Tequila +2%) and gained share of the category for the first time since 2011. Observation 4: 2024 cognac supplier volume sales were below 2015 Cognac supplier volumes declined -10% and fell below the 2015 level. Observation 5: Spirits-based RTDs are now c.9% of total US spirits sales Spirits-based RTD sales grew +16.5% taking its share of total US spirits up to 8.9% in 2024.
What happened? We have received the latest Cognac shipment data from BNIC for January 2025. While we make our usual caution on not reading too much into short-term trends (which can be very volatile), our key takeaways are below. BNPP Exane View: Cognac shipment volumes out of the Cognac region declined by -24% in January (cf. Dec +22%) marking a material deterioration in trend (cf. Q4 +9%, Q3 +2%, Q2 -16%). Looking at trends relative to a pre-pandemic (2019) base, Jan-25 shipments were -39% below (cf. Q4 -14%, Q3 -29%, Q2 -34%). Global Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane NAFTA Cognac shipments to the NAFTA region declined -16% YOY in January (cf. Q4 +37%, Q3 +4%, Q2 +20%). Compared with 2019 levels, NAFTA Jan-25 shipments were -37% below (cf. Q4 -2% Q3 -48%, Q2 -46%). NAFTA Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Far East Cognac shipments to the Far East region declined by -54% in the month (cf. Q4 -31%, Q3 -12%, Q2 -41%). Compared with 2019 levels, Far East Jan-25 shipments were also -54% below (cf. Q4 -44%, Q3 -16%, Q2 -31%). Far East Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Europe Cognac shipments to the Europe region declined -36% in January (cf. Q4 +4%, Q3 +15%, Q2 -22%). Compared with 2019 levels, Europe shipments declined by -58% this month (cf. Q4 -13%, Q3 -10%, Q2 -25%). By Quality By quality, VS shipments out of the Cognac region declined -13% (cf. Q4 +23%, Q3 +24%, Q2 +2%). VSOP shipments declined -39% (cf. Q4 -8%, Q3 -13%, Q2 -26%). Finally, XO shipments declined -38% this month (cf. Q4 -9%, Q3 -25%, Q2 -47%).
Summary of H125 results Pernod Ricard Q225 sales declined -2.5% with both group growth and the shape of the delivery by region broadly in-line with consensus expectation. H1 LFL EBIT declined -2.1%, ahead of company consensus (-5.5%) with the beat driven by the Americas and Asia/ROW. Group H1 EUR EBIT was broadly in-line with consensus (+50bp ahead) as the organic beat was offset by FX. H1 EPS came in -1.9% below co. cons. driven by finance costs. Pernod Ricard outlined a revised medium-term (FY27-29) financial framework in which it expects organic sales to grow +3-6% (previous framework was +4-7%) on average (with organic margin expansion) after a transition year in FY26. News We highlight that Pernod Ricard expects a gross impact from tariffs of c.EUR200m on EBIT, including China anti-dumping (c.EUR130-140m impact) and potential US tariffs (c.25% on Mexico/Canada, c.10% on Europe), but believes c.50% of this impact could be mitigated. Earnings We revise our FY25e/FY26e/FY27e EPS by c.-4% / c.-5% / c.-7%. Investment thesis While the stock is cheap, we see little reason for this to change near-term. Rating and target price We maintain our Neutral rating. Our target price moves from EUR122 to EUR107 (reflecting both our EPS revisions and reduction to our target multiple). 15 questions for management Which market(s) are the primary drivers of the 1%-pt reduction in your expected medium-term average growth rate?
BNPP Exane view The main incremental point of note from the call was that Pernod Ricard estimates a potential c.EUR200m impact on EBIT from tariffs (both China Cognac and US inc. 25% on Mexico / Canada and 10% on EU) which it estimates it could mitigate 50% of. In the context of fears of much larger cuts to consensus estimates than that implied by Pernod Ricard''s outlook commentary (both for F25 and beyond) the c.+2-3% share price reaction feels a bit uncharitable to us but likely reflects market scepticism around the level of visibility the company has. Highlights: QandA . Guidance: What is driving the update in FY25 guidance is the worsening of the outlook in China / China Duty-Free. But see some green shoots in the US and improvement in H2 (although still negative for FY). Expect China to sequentially improve in H2 given easier comps. In FY26, do not expect full recovery in China in central case expect stability compared to where we are today and assume implementation of tariffs. In travel retail, if duty-free suspension continues that will have a negative impact. Expect strong momentum in India to continue next year and beyond. Expect momentum in H2 for the rest of the business to continue. For the medium-term, the bottom end of the range is no growth in China and +LSD in the US. . Inventory levels: trade inventory levels are appropriate in key markets so there is nothing to flag. . Cyclical vs. structural: globally volumes have been growing for 4 consecutive quarters at Pernod Ricard and demographics are still tailwinds. TBA penetration in the US has been and is still stable. The biggest part of moderation currently being seen is economically driven as middle-class consumer incomes have come under pressure. Regarding Gen-Z, they drink less but they do drink better. They drink less beer and wine but penetration for spirits has gone up. There is a bit more abstinence amongst Gen-Z but the rest of Gen-Z will drink less frequently but trade-up on...
BNPP Exane View Q2 LFL sales at -2.5% is in-line with expectations and stronger than expected H1 organic margins (which look largely driven by AandP reduction) was offset by unfavourable FX leading to EUR EBIT also being in-line with consensus. While Pernod Ricard has reduced its medium-term financial framework (to +3-6% organic sales growth from +4-7% previously) and described FY26 as a transition year, all of this was expected and is already reflected in consensus expectations. Given the weakness of the shares yesterday, and fears of a much worse news, we expect a relief rally today and call the shares up c.+4-5%. Q2/H125 headline metrics . Q2 LFL: -2.5% (co. cons: -2.5%; VA cons. -2.1%) . H1 LFL EBIT: -2.1% (co. cons: -5.5%; VA cons. -5.2%) . H1 EBIT: EUR1,985m (+0.5% vs. co. cons.) . H1 EBIT margin (%): 32.1% (co. cons. 31.8%) . H1 LFL EBIT margin YOY (%): +65bp (co. cons. -44bp) . H1 EPS: EUR5.06 (-1.9% vs. co. cons.) Top-line drivers Scanning the Q2 top-line drivers by region, we note that trends came in broadly in line with consensus expectations (group Q2 LFL sales -2.5%, in line with co. cons.) with the Americas (-3.4% vs. co. cons. -3.7%) and Asia/RoW (-3.2% vs. co. cons. -3.7%) coming in slightly ahead of consensus expectations, offset by Europe (-0.7% vs. co. cons. +0.2%) which came in slightly below expectations. Bottom-line drivers Scanning the H1 LFL EBIT development by segment, the group LFL EBIT beat (-2.1% vs. co. cons. -5.5%) was driven by LFL EBIT growth in the Americas (+1.8% vs. VA cons. -6.5%) and better-than-expected performance in Asia/RoW (-3.3% vs. VA cons. -7.0%) which was partially offset by softer trends in Europe (-3.9% vs. VA cons. -0.7%). Note: the -39bp group EBIT margin change (+65bp LFL) reflects gross margin: -80bp (-20bp LFL), AandP +100bp (+115bp LFL) and structure costs -50bp (-30bp LFL). Other metrics . US: US H1 LFL sales declined -7% (Q1 -10%). Sell-out declined -6% in H1 with OND seeing improving...
What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 25th January 2025 (''January''). Note, within this report we refer primarily to ''core spirits'' trends which excludes the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. We note that the latest 4-week period to 25th January 2025 includes 2 days (29th/30th December 2024) that were not included in the base period (4-weeks to 27th January 2024). As such, we believe it is likely that the YoY growth in the latest 4-weeks has been modestly inflated by this impact given that 29/30th December are key buying days ahead of New Year''s Eve. BNPP Exane View US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -0.7% in the latest 4-week period to 25th January, a sequential improvement from -3.3% in December. We estimate core spirits volumes declined by -2.2% in the latest 4 weeks (vs. -4.4% in the prior period). Including Cocktails/Spirits-based RTDs, US industry off-trade sales grew by +1.7% in the latest 4 weeks (vs. December -1.4%). From a sub-category perspective, we note that Cocktails (+23.5%), Tequila (+4.4%), Cordials (+4.7%) and Canadian Whiskey (+2.0%) saw retail value growth in January, while all other categories declined. Company Summary Diageo core spirits retail sales grew by +2.9% in the latest 4 weeks, an improvement from -0.2% in December. Diageo core spirits volumes declined -0.6% in the month (vs. -3.0% in December). Don Julio growth remained strong in January (+31.3% vs. December +19.5%) driven by continued strong growth in reposado. Crown Royal retail...
What happened? We have received the latest NABCA Spirits industry data, which measures on and off-trade Spirits sales in 17 control states in the US. Control jurisdictions represent c.25% of the US Spirits market. Our key takeaways for the month of December 2024 are below. Please let us know if you would like to see our NABCA database. BNPP Exane View: Industry perspective: control states On a reported basis, spirits industry volumes declined -1.5% in the control states in December. On a selling day adjusted basis, we estimate December spirits industry volumes in the control states declined -0.9% to leave Q4 at +0.5% (cf. Q3 -0.9%, Q2 -1.7%). Excluding the impact of Cocktails (+22% in December), we estimate core spirits industry volumes declined by -2.2% on a selling-day adjusted basis, decelerating from -0.8% in November to leave Q4 at -1.3% (cf. Q3 -2.5%, Q2 -2.6%). Note: Overall, we estimate there was a -0.6% negative selling day impact YOY across the control states in December (with 4 fewer selling days in New Hampshire). We have not yet received the price / mix figures for December from NABCA. Company perspective Disclaimer: The company data is based upon reported volumes and this reflects calendar anomalies. Disclaimer made, Diageo reported volumes declined -1.0% in the month and outperformed the overall industry. Diageo continued to materially outperform in Tequila (vols +23.8% vs. category +5.8%) and Canadian Whisky (+7.5% vs. category -1.8%) which more than offset declines for most other major sub-categories. Pernod Ricard reported volumes declined -2.3% on a reported basis. Strong growth in Cocktails (+31.8%) was offset by declines in Irish (-7.8%), US Whiskey (-10.4%), Gin (-4.6%) and Rum (-7.4%). Remy Cointreau''s volume declined -2.8% in December. By category, Remy...
What happened? LVMH reported its FY24 results in which the Wine and Spirits division Q424 organic sales declined -8% which was broadly in-line with consensus expectations (bbg cons. -7.0%, VA cons. -8.6%). We note however that Cognac and Spirits organic sales declined -14% in FY24 (a miss vs. VA cons. at -10.8%) which we estimate implies an organic decline of c.-23% in Q424 (cf. 9M24 -11%). LVMH comments on Hennessy being held back by weaker local demand (in the FY). On the conference call, we note the Chairman (Bernard Arnault) commented on expectation of a good recovery for the Cognac and Spirits business in 2 years. We note that Wine and Spirits division FY24 EBIT at EUR1,356m was a c.-14% miss vs. VA cons. and implies cal. H224 EBIT of EUR579m. We also note that on the conference call, LVMH''s CFO commented that divestment is not on the agenda with respect the Wine and Spirits division (Moet Hennessy). BNPP Exane View: While the material sequential deterioration in the Cognac and Spirits Q4 organic sales trend appears in-large part attributable to the phasing of comps (we note Q423 LFL sales grew +7% and 9M23 sales declined -14%) we nevertheless view the material decline in the quarter as a negative marker for the Cognac players (most notably Remy Cointreau). Diageo owns a 34% stake in Moet Hennessy (LVMH''s Wine and Spirits division) and the divisional profit miss therefore has implications for fiscal Diageo H125 profits (to be reported on 4th Feb 2025). Wine and Spirits division EBIT in cal. H224 EBIT of EUR579m represents a shortfall vs. VA cons. of EUR225m. We estimate this equates to a PAT miss of around EUR155m. Converting this to USD and applying Diageo''s 34% ownership of the division, we estimate this equates to a potential c.USD57m downward revision to Diageo consensus Associate PAT contribution in fiscal H125. To put this into context, we estimate this represents c.2.5% of Diageo group consensus H125e net income pre-exceptionals (or c.1.5% for...
Feedback from our event with the former CFO / CTO of Pernod Ricard North America Yesterday we hosted an expert access event with Guillaume Thomas, former CFO (2014-20) and Chief Transformation Officer (2020-22) of Pernod Ricard North America and now founder of Martingale Cognac. Mid-term industry outlook: belief in a return to +4-5% value growth Mr. Thomas believes that while absolute levels of per capital alcohol consumption in the US may not return to growth, the US spirits category will eventually return to a +4-5% value growth algorithm driven by share of throat gains and premiumisation. US pricing: unlikely to see material increases near-term Many brands were overly aggressive on pricing during / post pandemic and the price sensitivity of the US consumer was probably under-estimated by the industry. Near-term, Mr. Thomas believes material US spirits industry pricing is unlikely. Pernod US: recent weakness and turnaround potential Under the previous North America management team Pernod Ricard attempted to change some of its ways of working which did not really work. However, Mr. Thomas believes Conor McQuaid is one of the best executives at the company and the right leader to stabilise the US business. US tariffs: Distillers would likely accept some near-term margin hit If tariffs were implemented on Mexico / Canada, Mr. Thomas suspects that most distillers would rather take some of the hit to margins than make changes to price structures, in the hope that the tariffs are temporary. Canadian Whiskey consumers are generally relatively price sensitive which could mean the tariff impact is more meaningful. Please see within for further feedback
What happened? We have received the latest Nielsen retail off-trade data for the Western European spirits industry, covering the four weeks to 29/12/2024 (''December''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country....etc. BNPP Exane View: Industry perspective Note: weak alcohol industry sell-out growth YOY per this month''s update is likely materially impacted by calendar shift. This month''s data (to 29-Dec-2024) does not include the 30/31st Dec (i.e. the key days for alcohol buying ahead of New Year''s Eve) which are included in the base period (data to 31-Dec-2023). Overall spirits industry sales declined -7.5% in the 4 weeks to 29th December, a deterioration from the -3.9% decline last month, to leave Q4 at -5.0% (vs. Q3 -1.4%). Industry off-trade volumes declined -8.6% (vs. -3.9% in Nov) to leave Q4 at -5.8% (vs. Q3 -2.6%). Spirits industry price / mix increased by +1.4% in the month to leave Q4 at +0.9% (vs. Q3 +1.3%). Company summary Diageo off-trade spirits sales declined by -8.1% in the latest 4 weeks (vs. November -5.5%), to leave Q4 at -6.5% (vs. Q3 -1.5%). As with the rest of the industry, Diageo''s December volumes were likely impacted by calendar shift, with volumes declining -10.0% (vs. Nov -4.4%) leading to Q4 -8.1% (vs. Q3 -4.1%). Pernod Ricard sales declined by -9.5% in December (vs. -5.3% in November) to leave Q4 at -6.7% (vs. Q3 -1.1%). Pernod Ricard spirits volumes declined -9.3% (vs November -6.5%) to leave Q4 at -7.5% (vs. Q3 -1.2%). Campari''s sales declined by -0.3% in the latest period (vs. November +8.4%), to leave Q4 at +2.3% (vs. Q3 +3.3%). Campari''s December volumes remained in growth +2.4% (vs. November +13.4%) leaving Q4 overall +4.8% (vs. Q3 +3.1%). Remy Cointreau sales declined -4.7% in the latest 4 weeks (vs. November +0.4%) to leave Q4 at -1.7% (cf. Q3 +3.0%). Volumes declined by -2.1% in the month while price / mix declined...
What happened? We have received the latest Cognac shipment data from BNIC for December 2024. While we make our usual caution on not reading too much into short-term trends (which can be very volatile), our key takeaways are below. BNPP Exane View: Cognac shipment volumes out of the Cognac region grew by +22% in December (vs. November -13%) to leave Q424 at +9% (cf. Q3 +2%, Q2 -16%). Looking at trends relative to a pre-pandemic (2019) base, December shipments were -2% below to leave Q424 at -14% (cf. Q3 -29%, Q2 -34%). Global Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane NAFTA Cognac shipments to the NAFTA region grew by +54% in December to leave Q424 at +37% (cf. Q3 +4%, Q2 +20%). Compared with 2019 levels, NAFTA December shipments grew by +21% to leave Q424 at -2% (cf. Q3 -48%, Q2 -46%). NAFTA Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Far East Cognac shipments to the Far East region declined by -29% in the month (vs. November -57%) to leave Q424 at -31% (cf. Q3 -12%, Q2 -41%). Compared with 2019 levels, Far East December shipments were -36% below to leave Q424 at -44% (cf. Q3 -16%, Q2 -31%). Far East Cognac shipments YoY (HL/%) / Source: BNIC, BNP Paribas Exane Europe Cognac shipments to the Europe region grew by +17% in December to leave Q424 at +4% (cf. Q3 +15%, Q2 -22%). Compared with 2019 levels, Europe shipments declined by -16% this month, in line with November, leaving Q424 at -13% (cf. Q3 -10%, Q2 -25%). By Quality By quality level, VS shipments out of the Cognac region grew by +34% YoY in December to leave Q424 at +23% (cf. Q3 +24%, Q2 +2%). VSOP shipments returned to growth +11% to leave Q424 at -8% (cf. Q3 -13%, Q2 -26%). Finally, XO shipments grew by +1% this month to leave Q424 at -9% (cf. Q3 -25%, Q2 -47%).
Consensus has warmed to a Spirits recovery narrative; we''re not there yet Consensus has warmed to a Spirits recovery narrative. While we can appreciate the bull argument that Distiller earnings are much closer to a trough (given easy sell-in comps), the sell-out data in both the US and Europe has not yet improved enough for us to take a more constructive stance. Diageo (-): near-term dividend risk combined with a premium valuation keeps us cautious Diageo''s (relatively) strong US sell-out growth is being fuelled by huge outperformance from Don Julio and Crown Royal, which we think is unlikely to be sustained in the mid-term. The stock trades at close to an 18% premium to EU Bevs which we struggle to justify given its est. c.+6% MT EPS growth profile and risk of the first dividend cut in its history (see here). We remain Neutral rated on Pernod Ricard and Remy Cointreau Pernod Ricard is cheap, but we expect it to remain cheap as we continue to see modest downside risk to consensus earnings and US sell-out volumes remain in MSD decline despite now negative price / mix. We also remain Neutral on Remy Cointreau, where longer-term concerns offset potential optimism on the very near-term outlook. Campari (+): downside risk to consensus is more than reflected in the shares We acknowledge downside risk to consensus (esp. in H1) but believe this is well understood by the market and more than reflected in the shares. A reassuring performance from the new CEO (joining 15th Jan) would likely bring investors back to Campari, which remains our sole Spirits Outperform. Our preference remains Beer over Spirits, but structural concerns are building for all alcohol Beverages are trading at a 15-year low vs. EU Staples, and we believe alcohol is at the sharp end of the structural concerns impacting sector valuations. The Beer over Spirits trade did not really work in 2024, but we sense it is a much less consensual position for 2025 and remains our preference.
What happened? We have received the latest US Nielsen retail off-trade data for the US Spirits industry, covering the four weeks to 28th December 2024 (''December''). Note within this report we refer primarily to ''core spirits'' trends which excludes the growth of spirits-based cocktails/RTDs. Our ''core spirits'' estimates by distiller are formed by aggregating all major brands separately disclosed by Nielsen. We also present the growth trends for ''total spirits'' (incl. spirits-based RTDs) in the second table for which we would caution volume and price / mix trends are distorted by the impact of cocktail/RTDs. BNPP Exane View US Spirits industry: Off trade We estimate US core spirits retail sales in the US off-trade declined by -3.4% in the latest 4-week period to 28th December, a deterioration from -0.7% in November, to leave Q4 at -1.6% (cf. Q3 -0.5%, Q2 +0.1%). We estimate core spirits volumes declined -4.4% in December to leave Q4 -3.1% (cf. Q3 -2.4%, Q2 -1.9%). Including Cocktails/Spirits-based RTDs, US industry off-trade sales declined by -1.5% in the latest 4 weeks (vs. Nov. +1.6%) taking Q424 to +0.6% (cf. Q3 +1.8%, Q2 +2.0%). From a sub-category perspective, we note that only Cocktails (+16.5%) and Canadian Whiskey (+1.5%) saw retail value growth in December. Tequila retail sales in the off-trade were flat. Company Summary Diageo core spirits retail sales declined -0.2% in the latest 4 weeks, a slowdown from +2.1% growth in November, to leave Q4 at +1.6% (cf. Q3 +1.8%, Q2 +1.1%). Diageo core spirits volumes declined -3.0% in the month to leave Q4 at -2.0% (cf. Q3 -2.1%, Q1 -3.5%) while price / mix was ahead +2.9% to leave Q4 at +3.6% (cf. Q3 +4.0%, Q2 +4.7%). While growth for Don Julio remains exceptionally strong in the month (vols +22.6%, sales +19.5%) we note that the brand has decelerated somewhat to leave Q4 vols at +31.3% (cf. Q3 +37.3%, Q2 +23.1%). Crown Royal retail sales were ahead +9.3% in December to leave Q4 at +12.8% (cf. Q3 +10....
What happened? We have received the latest NABCA Spirits industry data, which measures on and off-trade Spirits sales in 17 control states in the US. Control jurisdictions represent c.25% of the US Spirits market. Our key takeaways for the month of November 2024 are below. Please let us know if you would like to see our NABCA database. BNPP Exane View: Industry perspective: control states On a reported basis, spirits industry volumes declined -1.2% in the control states in November. On a selling day adjusted basis, we estimate November spirits industry volumes in the control states grew +1.3%, broadly in-line with Oct at +1.4%, to leave QTD at +1.3% (cf. Q3 -0.9%, Q2 -1.7%). Excluding the impact of Cocktails (+38% in November), we estimate core spirits industry volumes declined by -0.8% on a selling-day adjusted basis, broadly in-line with Oct at -0.7%. Note: Overall, we estimate there was a negative selling day impact YOY across the control states in November (with 5 fewer selling days overall, notably driven by Michigan). Company perspective Disclaimer: The company data is based upon reported volumes, and this reflects calendar anomalies. Disclaimer made, Diageo reported volumes grew +0.5% in the month and outperformed the overall industry. Diageo continued to materially outperform the industry in Tequila (vols +27.3% vs. category a +7.4%) and Canadian Whisky (+2.2% vs. category-6.2%). Pernod Ricard reported volumes declined -2.4% on a reported basis. Strong growth in Cocktails (+55%) was offset by declines in Irish (-5.1%) and US Whiskey (-7.2%), Gin (-7.5%), Vodka (-3.6%) and Rum (-10.6%). Remy Cointreau''s volume grew +0.1% in November. By category, Remy Cointreau materially outperformed in Cognac (-2.2% vs. category -11.1%), Cordials (+3.3% vs. category -3.5%) and Gin (+10.6% vs....
What happened? We have received the latest Nielsen retail off-trade data for the Western European spirits industry, covering the four weeks to 01/12/2024 (''November''). Please let us know if you would like to see our detailed database for more comprehensive details on the performance by distiller, country....etc. BNPP Exane View: Industry perspective Overall spirits industry sales declined -4.1% in the 4 weeks to 1st December, a deterioration from the -2.2% decline last month, to leave QTD at -3.2% (cf. Q3 -1.3%). Industry off-trade volumes declined -4.1% (vs. -3.5% in Oct) to leave QTD at -3.8% (cf. Q3 -2.7%). Spirits industry price / mix was flat in the month to leave QTD at +0.6% (cf. Q3 +1.3%). Company summary Diageo off-trade spirits sales declined by -5.4% in the latest 4 weeks, broadly in-line with recent trend, to leave QTD at -5.2% (cf. Q3 -1.7%). While Diageo''s volume trajectory improved to -4.4% to leave QTD at -6.6% this was offset by a deterioration in price /mix which declined -1.1% in the month to leave QTD at +1.6%. The primary driver of Diageo''s softness is the UK where its spirits retail sales declined -7.0% in the month. Pernod Ricard sales declined by -5.5% in November (cf. -3.5% in Oct) to leave QTD at -4.5% (cf. Q3 -1.1%). Pernod Ricard spirits volumes declined -6.7% (with Germany vols at -15.2% particularly weak) to leave QTD at -6.1% (cf. Q3 -1.3%). Campari''s sales grew by +8.4% in the latest period, a material sequential acceleration from +0.6% last month, to leave QTD at +4.5% (cf. Q3 +3.3%). The acceleration appears to partly be attributable to a sequentially easier comp. base as Nov''23 sales declined -0.8% (cf. +6.2% in Oct''23). Strong volume growth in the month (+13.5%) was partially offset by negative price / mix (-4.5% in Nov from +0.5% in Oct). We note that Campari''s sequential price / mix trend was largely unchanged in most major markets. The material decline in the month at the group level appears to primarily...
What happened? We recently caught up with Pernod Ricard ahead of its closed period (it reports H125 results on 13th February) to get an update on what it has been saying to investors over recent weeks. BNPP Exane View: Overall, we felt that the tone was generally cautious, highlighting that while YoY trends have seen sequential improvement vs. Q1 across most major markets (US, China, India, Europe) the magnitude of improvement is slightly less than is assumed in consensus expectations. As a result we would expect consensus H125 LFL sales/EBIT to move down marginally (VA cons is currently -2.6%/-2.7% respectively), with H1 LFL EBIT declining by more than LFL sales in H1. We note that Pernod Ricard reiterated its FY25 guidance. Additional colour below: Americas: In the US, while Q2 sales are now more closely aligned with sell-out trends than in previous quarters, Q2 has seen no underlying improvement in trends versus Q1. Elsewhere, Brazil is likely to be sequentially softer in Q2 as Q1 benefitted from some phasing while weak underlying trends in Mexico have continued vs the prior quarter. Asia/RoW: In China, the underlying weak consumer sentiment is unchanged while in India, while Q2 will likely benefit from some phasing impact from Q1, overall growth for the quarter is unlikely to be materially above its mid-term trend. Europe: Some European markets that were impacted by poor weather in Q1 (UK, France) have seen an improvement in YoY trends, while consumer demand in markets like Germany and Spain remains soft. EBIT phasing: While Pernod continue to expect a containment of organic EBIT margin in FY25, with several of the cost controls/measures set to be more of a benefit in H2 than in H1, we expect that H1 LFL EBIT will decline by more than LFL sales.
Could Diageo and Pernod Ricard rebase their dividends? Since its formation in 1998 Diageo has grown its ordinary dividend for 26 consecutive years. Dividend cuts this year at both Diageo and Pernod are clearly not an absolute necessity. However, we believe risk is unusually high at both the Spirits majors. With this report we explain our thinking. Pay-out ratios are stretched at both Diageo and Pernod Ricard Diageo''s FY24 dividend cover (1.74x) was outside its long-term target range (1.8x to 2.2x) and consensus forecasts a further deterioration in FY25e (1.60x). Pernod''s pay-out ratio has risen to c.60% and is also set to deteriorate (cf. c.50% target pay-out). Diageo: 100% USD dividend vs. c.50% US profits (with tariff risk) With Diageo''s divi now declared in USD, as the new CFO looks forward, he may be wary of future USD strength. We estimate FCF (BNPPE def.) has only just covered dividends paid in recent years. Management teams will also be conscious of heightened global tariff risk to near-term profits. We cut our Diageo and Pernod Ricard FY25e dividends by c.-20% Unless positive inflections in Spirits earnings is much stronger than we (and consensus) anticipate, dividend rebasing looks a matter of time. We assume a c.-20% cut to both Diageo and Pernod Ricard dividends in FY25e to allow for a return to growth from FY26e onwards. Diageo: The board / new CFO''s decision should be clear with H125 results on 4 February Diageo''s FY dividend is split c.40/60 between the interim and final. We therefore expect new CFO, Nik Jhangiani, to address the dividend with H125 results on 4th February. We re-iterate our Underperform rating at Diageo (TP GBp2,120) While the market is prepared for a reduction to Diageo''s +5-7% medium-term LFL sales growth outlook, it is rather less so for a dividend cut. We re-iterate our Diageo U/P rating (TP GBp2,120).
Summary of Q125 sales Q1 LFL sales at Pernod Ricard declined -5.9%. The small miss vs. company consensus (-4.8%) was primarily driven by Asia-RoW (-8.1% vs. VA cons. -4.3%) where growth in India (+2% LFL) was negatively impacted by phasing effects which are expected to fully reverse in Q2. The c.-6% group LFL sales decline was made up of stable volumes and a -6% price / mix effect. The pricing environment moderated through Q1 and Pernod Ricard experienced negative market-mix (driven by declines in the US and China). News We highlight that Pernod Ricard''s FY25 outlook captures the expected impact of China Cognac duties. Earnings We make no material revisions to our EPS estimates. Investment thesis While the stock is cheap, we see little reason for this to change near-term. Rating and target price We maintain our Neutral rating. Our EUR122 target price remains unchanged. 15 questions for management Given likely material organic sales declines in both China and the US in fiscal H125, is it fair to assume your YOY organic operating profit margin will be negative in the first half?
We have adjusted our estimates for modest operational revisions and updated FX. Our target price moves from EUR125 to EUR122. We do not consider the changes to be material; our rating is unchanged.
Summary of FY24 results Pernod Ricard Q4 LFL sales grew +2.8% (in-line with VA cons.) as a +600bp beat in the Americas was offset by misses in Asia/RoW and Europe. FY LFL EBIT growth at +1.5% was +130bp ahead of VA cons. but absolute (EUR) EBIT was in-line. FY EPS at EUR7.90 was modestly (-0.6%) below VA cons. and FY DPS is EUR4.70 (flat YOY). Pernod Ricard US LFL sales declined -10% in FY24 while depletions declined c.-7% and sell-out declined c.-4% (both on a value basis). News We highlight that due to the continued weakness in consumer demand, Pernod Ricard expect its FY25 growth trend in China to be similar to FY24 (China LFL sales declined -10%). Earnings We revise our FY24e / FY25e / FY26e EPS by c.-9%/ c.-11% / c.-11% which reflects a combination c.-6% reduction of our FY26e EBIT estimate and various below the line items. Investment thesis While Pernod Ricard has materially de-rated, we believe that due to a combination of share loss in a weak US spirits market and China uncertainties (including the anti-dumping investigation into Cognac) it may take some time for a re-rating to be realised. Rating and target price We maintain our Neutral rating. Our target price moves from EUR140 to EUR126 (primarily driven by our EPS revisions). 15 questions for management What level of pricing do you estimate would be required to offset a tariff of 30.6% on your Chinese Cognac business? What impact do you estimate this would have on your groups volumes / EBIT?
We have adjusted our estimates reflecting changes to our operational assumptions and updated FX. Our target price moves from EUR145 to EUR140. We do not consider the changes to be material; our rating is unchanged.
News on a decision over EU tariffs on Chinese BEVs could be imminent (5th June) The risk of a punitive import tariff on Cognac in China is directly linked to the EU''s BEV (Battery Electric Vehicle) subsidy probe in our view. While the EU subsidy probe is not due for publication until November, the expected date for announcement of provisional measures is 4th July and pre-disclosure to the sampled Chinese EV players is required 4 weeks in advance of this (5th June). An EU BEV tariff hike is now seen as a given by the Chinese EV players Our Autos team believe that an EU tariff hike on BEVs is now seen as a given by the Chinese EV players. An increase from c.10% to c.25% is the broad consensus expectation amongst them. How would China react? Implications for Cognac Some form of retaliatory measure from China feels likely. And the market will speculate as to further action in the Cognac investigation. Both Remy Cointreau (est. c.32% of EBIT) and Pernod Ricard (est. c.12% of EBIT) have material exposure to Chinese Cognac. Pernod Ricard (=): Cheap, but we expect it to remain that way At 16x CY25e P/E Pernod Ricard is screening as cheap. However, combining an intensified spirits industry promo context, continued market share loss, and China worries, we expect it to remain so. Remy Cointreau (+): Despite near-term negative catalysts, we hold on to our Outperform We see limited scope for the FY24 results update on 6th June or near-term China news to inject enthusiasm for the shares. However, sentiment on the stock remains negative and we believe buyside expectations are already set for no profit growth in FY25. As we explore within, we believe the shares are trading well below the value of the group''s aged inventories, and that the potential upside in a bull case scenario (130%) is materially higher than the incremental downside risk (-45%). While acknowledging near-term headwinds, we maintain a (patient) Outperform as current risk reward is skewed to the...
Summary of Q324 sales A weak Q3 for Pernod Ricard with group LFL sales declining -0.5%, a -340bp miss vs. company consensus. Q3 LFL sales were below Visible Alpha consensus expectation in all regions: Americas -7.2% vs. VA cons. -3.5%; Asia-RoW +8.0% vs. VA cons. +10.1%; and Europe -5.7% vs. VA cons. -3.5%. Q3 group volumes grew c.+1% following 4 consecutive quarters of declining volumes. 9M LFL sales growth of -2.4% was made up of a c.-4% volume decline and c.+2% price / mix (with a c.+6% price effect offset by negative market mix). News We highlight that due to a combination of the more aggressive promotional environment in the US and interest rates remaining elevated, Pernod Ricard expects trade inventory adjustments to continue to impact its US business in Q4 and into FY25. Earnings We revise our FY24e / FY25e / FY26e EPS by c.0%/ c.-1% / c.-1%. Investment thesis While Pernod Ricard has materially de-rated, we believe that due to a combination of share loss in a weak US spirits market and China uncertainties (including the anti-dumping investigation into Cognac) it may take some time for a re-rating to be realised. Rating and target price We maintain our Neutral rating. Our target price moves from EUR147 to EUR145. 15 questions for management In which of your markets do you expect a material sequential acceleration in sales growth trend in Q4?
Feedback from our expert access event with Breakthru Beverage Group Yesterday we hosted an expert access event with Breakthru Beverage Group, a leading (#3 in the US) Wine and Spirits wholesaler across 15 US markets and Canada. Price cuts are coming in US spirits To our minds, the most notable takeaway from the call was that some suppliers are looking to take relatively aggressive price decreases (both via list price reductions and more / deeper promotions) due to volume elasticity. Price reductions will not be universal; risk at the luxury-end appears highest Price cuts will not be universal but specific to some suppliers / brands. Our sense is that the risk of price cuts is highest at categories / brands where pricing over recent years has been exceptionally strong and recent volume declines particularly steep. March was a tough month, but April is looking better so far; optimistic about growth in H2 From a core spirits volume depletion perspective, while Jan / Feb-24 trends provided some hope, March was a tough month. However, April is looking better so far and Breakthru believes that core US spirits industry volume depletions could return to growth in H224. Retailer inventories still above normal, but wholesaler de-stocking largely complete While retailers are still sitting on relatively high inventories, Breakthru believes inventories in the wholesale channel are broadly re-aligned with normal levels. Please see within for full feedback from the event
Feedback from our expert access event with SipSource Yesterday we hosted an expert access event with SipSource which is part of the Wine and Spirits Wholesalers of America and aggregates depletion data directly from wholesalers representing c.65% of US sprits industry depletions by volume (without extrapolation) across the on- and off-premise. US spirits depletions: not expected to return to growth in 2024 SipSource estimates US spirits industry volume depletions declined -2.2% in the 12-months to Feb-2024 and -3.6% ex. Ready-To-Drink cocktails. 2024 to-date (to Feb) spirits (ex. RTD) volume depletions declined -3.5% YOY and the industry has therefore seen little change in trend in recent months. SipSource''s analysts do not expect industry depletion volumes to return to growth in 2024. On-premise vs. off-premise The outperformance on-premise vs. off-premise has now narrowed (possibly driven by significantly higher inflation at the former) and trends in each of the channels is now largely balanced YTD. US Cognac trends are in decline but improving US cognac volume depletions declined -13.3% in the rolling 12-months to Feb-2024 but only -6.1% in Jan/Feb-24. The improvement has been driven by the USD25-50/bottle price point. The headwinds facing the industry feel larger than in the past While Spirits are viewed as being the best placed category within US alcohol, there are many headwinds that feel larger now than in the past 25 years (RTDs, moderation, anti-alcohol sentiment, possibly marijuana) which means that long-term US spirits volume growth could be closer to low-single digit growth (vs. +2-3% historically). We view both the near- and long-term the comments on US spirits industry as somewhat cautious (all the European distillers have material exposure). Please see within for further feedback
The US scanner data has improved, why have we not turned more bullish on Spirits? One of the key reasons behind our cautious stance on spirits (particularly Diageo (-)) was very weak underlying consumer demand in the US (see 2024: in low spirits). With est. core US spirits industry volumes in the off-trade (per Nielsen) returning to growth in Q1 (+1.5%) following a weak Q4 (-1.0%), should we now not be more constructive? US Nielsen data has improved a little, but it should have improved more While the improvement in trend looks encouraging, Q1 US growth per Nielsen likely benefitted from calendar timing impacts and Feb/Mar are the months with the easiest comps. for the whole of 2024. The scanner data trend should arguably have improved much more. Industry volumes remain in decline in the control states We estimate Q1TD (to Feb) selling day adj. spirits volumes declined -3.7% on the control states, marking a deceleration from the -0.3% decline in Q4. Industry volumes remain in decline. More wholesaler de-stocking to come in cal. Q1 US alcohol wholesaler inventory /sales ratios went back up in Jan-24 and were equal with the level seen in the middle of 2023. While a weak quarter in the US has now been well flagged by Pernod Ricard, we suspect it may not be alone is seeing wholesaler de-stocking in the US in cal. Q1. We revise down our cal. Q1/H1 LFL sales estimates at Pernod Ricard and Remy Cointreau We revise down our cal. Q1/H1 LFL sales estimates at Pernod Ricard and Remy Cointreau (our Campari / Diageo estimates remain unchanged but remain below VA cons. in cal. Q1/H1). We continue to prefer Beer over Spirits We continue to prefer Beer (particularly Heineken (+) and Carlsberg (+)) over Spirits (we remain Underperform Diageo (-)).
Summary of H124 results Pernod Ricard Q2 LFL sales declined -3.5%, in-line with consensus expectation (VA. cons. -3.6%). H1 LFL EBIT declined at -2.8% (VA. cons. -5.1%) which led to c.+1.2% beat on H1 EBIT. The principal driver of the H1 LFL EBIT growth beat by region was Asia-ROW (+5.6% vs. VA cons. -0.4%). H1 EPS at EUR5.68 was in-line with VA. cons. For FY24 Pernod Ricard now expects broadly stable organic sales growth and low single digit growth in organic operating profit. News We highlight that Pernod Ricard remains confident in its medium-term financial framework (+4-7% LFL sales growth, aiming for the upper-end, and organic operating leverage of +50/60bps) and expects FY25 to be in this range. Earnings We revise our FY24e / FY25e / FY26e EPS by c.-2% / c.0% / c.+2%. Investment thesis While Pernod Ricard has materially de-rated, we believe that due to the US market ''transition'' and China uncertainties (including the anti-dumping investigation into Cognac) it may take some time for a re-rating to be realised. Rating and target price We maintain our Neutral rating. Our target price moves from EUR148 to EUR150. 15 questions for management What gives you confidence that the US spirits market will return to +4-5% sell-out value growth over the next 6-12 months?
China Cognac: down in the dumps On the 4th of January 2024, The Ministry of Commerce in China (MOFCOM) announced an anti-dumping investigation into EU brandy (i.e. Cognac). This is the subject of this report. The Australian wine precedent is concerning... In August-2020 MOFCOM launched a similar anti-dumping investigation into Australian wine. By November-2020 MOFCOM had announced severe (between 107-212%) import duties on Australian wine which has driven a -96% decline in export volumes to China by 2022 (vs. 2019). ...But previous EU wine precedent is more encouraging... A similar 2013 dispute between the EU and China concerning solar panels and EU wine was resolved quickly (within 2 months). As was the case in 2013, Germany is wary of a trade war given its own automotive industry exposure to the Chinese market. ...And a c.16% import duty would be manageable The investigation application estimates a 15.9% dumping margin on EU cognac imports. We estimate that an equivalent, counter-vailing import duty could be covered by a c.+5% price increase (at the retail level). This would likely have little impact on mid-term Chinese cognac demand. Stepping back from the detail, we suspect it is the conclusion of the EU''s probe into Chinese EV subsidies that will be key in determining if import duties are added to Cognac (and how punitive these could be). Remy Cointreau: further uncertainty but we could be at the point of peak pain We estimate Chinese Cognac accounts for c.32% of Remy Cointreau profits and therefore the investigation adds further material uncertainty to the investment case. However, with the shares down c.-10% since the news we are conscious that we may be at the point of peak pain. We remain Outperform on Remy but lower both its and Pernod (=) TPs to reflect China risk and peer derating.
Following the blow suffered by Pernod Ricard’s share price since the last publication, the news and reiteration of the FY 2024 outlook are music to investor ears. Nonetheless, caution is the watchword: despite easier H2 comps, the situation in China and the US remains volatile. We await more visibility.
Summary of Q124 sales Q1 LFL sales growth at -2.4% was broadly in-line with consensus expectations (co. cons: -2.6%; VA cons: -2.3%) with the shape of the development also being very much as expected. Broadly in-keeping with our own expectation, LFL sales declined by -8% in both the US and China. News We highlight that Pernod Ricard commented that it expects that the US inventory adjustments were largely a Q1 issue and that it has seen an improvement in China in both September and first half of October. Earnings We leave our FY24e/FY25e/FY26e EPS broadly unchanged. Investment thesis While Pernod Ricard has materially de-rated, we believe that due to the US market ''transition'' and China uncertainties it may take some time for a re-rating to be realised. Rating and target price We maintain our Neutral rating and EUR188 target price. 15 questions for management GLP1s could potentially pose a serious threat to the alcohol industry. While appreciating that it is early days, based upon the work that you have done so far, what are your thoughts?
After our call with the IR team, we have decided to lower our estimates and cut our target price by 4.3% from €228 to €218. Although we had been in line with consensus, we now expect results to be lower, broadly explained by: i) the softening situation in China, ii) the New Delhi sales licensing problem, and iii) a weak performance in travel retail.
Summary of FY23 results Q4 LFL sales growth at +19% was somewhat ahead of VA consensus (+15.8%), as was FY LFL EBIT (+11% vs. VA cons at +10.2%). The FY LFL EBIT beat was more than offset by FX (EUR(70)m vs. VA cons at +EUR60m) which led to EBIT at EUR3,348m coming -3.7% below VA consensus. The latter was the principal driver behind EPS at EUR9.11 coming -2.9% below VA consensus. The FY dividend at EUR4.70 was in-line with VA consensus. News We highlight that Pernod Ricard expects a slow start to the year with sales declining in both the US and China in Q1, in part due to a high basis of comparison. Earnings We revise our FY24e/FY25e/FY26e EPS by -4% to -6% (primarily due to FX). Investment thesis While near-term trends will likely be sluggish, we believe that Pernod Ricard is a key Staples growth play and it will slowly garner interest in what will gradually become a lower growth operating environment for Staples. Rating and target price We maintain our Outperform rating. Our TP moves from EUR235 to EUR213 (primarily due to a reduction in target multiple). 15 questions for management It is in no-one''s interest for FX to be a big talking point. Even if it is a moving feast, why not give more FX guidance?
The results were remarkable and exceeded market expectations. Asia and China spearheaded Pernod’s results. Pernod Ricard reiterated its FY 2024 outlook, but expects Q1 to be soft. Caution is advised in China and the US, where growth is expected to decline in Q1. Some softness in demand is observed in China due to the macro-economic environment, especially in the on-trade segment.
The consensus view: the US spirits industry is seeing post-Covid ''normalisation'' After a period of abnormally strong spirits growth during the pandemic, US spirits volumes are now experiencing a temporary decline as the industry settles at a new ''normalised'' base. The current ''normalisation'' in sell-out trends is being amplified at the distiller level as distributors also adjust their inventories. This, in summary, is the consensus narrative, and a convenient one for the industry. With this report we outline why we believe normalisation (from a sell-out perspective) was complete in 2022 and the current volume declines are therefore more of a cause for concern. BNPP Exane view: Normalisation should have been completed in 2022 In the 5-years preceding the pandemic (FY14-19) US spirits industry volumes grew at a c.+2.9% CAGR (average of IWSR, Discus, NABCA). While US spirits volume growth in 2020 and 2021 was indeed unusually strong, we find that over the latest 3-year period (FY19-22) the US spirits industry volumes have also grown at a c.+2.9% CAGR. The c.-1% decline in 2022 should then, in-theory, already have brought the industry back in-line with historical trend. The ''normalisation'' narrative is convenient, but may not be true We view the prevailing post-Covid ''normalisation'' narrative as a convenient one for the industry, but perhaps not one that is actually true. We believe that weak YTD sell-out trends (we estimate a c.-1% YTD industry volume decline) reflect a decline below trend, not to trend. While near-term (FY23) destocking risks feel appropriately reflected in consensus / share prices, the possibility of further material destocking or anything more structural is likely not. Conclusion: we continue to approach the US spirits industry with some caution In conclusion, we struggle to explain what is driving the YTD below trend decline (elasticity?) and hence continue to approach the US spirits industry with some caution. Within the...
2022 IWSR data and 15 observations for investors IWSR (International Wine and Spirits Research), which describes itself as the global benchmark for beverage alcohol data, released its 2022 estimates last week (25th May). Having combed through the data, we draw-out 15 observations that we believe are likely to be of most interest to investors. Observation 1: Both Western Style Spirits and Beer gained share of throat in 2022 Combining the new IWSR data with preliminary Beer estimates per GlobalData, we update our servings basis Share of Throat (SoT) analysis. We find that both Western-Style Spirits (WSS) and Beer gained SoT in 2022. Observation 2: Things can change quickly in US Spirits We observe that 3 of the top 10 2022 spirits brands (by retail sales) in the US (Tito''s, Fireball and Casamigos) had a combined value share of 1% a decade earlier. Things can change quickly in US spirits. Observation 3: Cumulative pandemic US Cognac pricing has been exceptionally strong Splitting out cumulative volume growth, mix and pure pricing by spirits sub-category between 2019-22, we find that estimated US Cognac industry pricing at c.+21% has been greater than any other spirits sub-category. Observation 4: Remy Cointreau US Cognac sell-out volumes declined -28% in 2022 IWSR estimates point to a -28% decline in Remy Cointreau''s US Cognac volumes in 2022, driven by -36% in VSOP. Despite this, Remy Cointreau''s CY22 US Cognac volumes were +3.9% ahead of pre-pandemic (2019) and retail sales +27.8% ahead. Observation 4: UK Gin volumes declined -12% in 2022 Following a -7.3% volume decline in 2021, UK gin volumes (ex. duty free) declined a further -12.0% in 2022 with the drop in Premium+ price tiers (-16.4%) outpacing the lower end.
Summary of Q323 sales A relatively weak quarter for Pernod Ricard with Q3 LFL sales declining by -2.2%, materially below co. consensus (+0.5%). The weakness was principally attributable to: i) inventory adjustments in China following a soft festive season and ii) the US (9M -1% vs. H1 +5%) which was impacted by phasing (depletions were more resilient). News We highlight that Pernod Ricard has seen dynamic sell-out in China in March and thus expects a very strong Q4 in China (this is also the case for the group as a whole). Earnings We revise our FY23e/FY24e/FY25e EPS by c.+1-2%. Investment thesis We see attraction in Pernod Ricard as being a relatively inexpensive way in which to get exposure to the structurally attractive spirits industry. Rating and target price We maintain our Outperform rating. Our target price moves from EUR231 to EUR250, with the increment being principally driven by an increase in target multiple (reflecting recent sector/market re-rating). 15 questions for management Given the easy comparative period and strong sell-out trends, should Chinese sales be spectacularly strong in Q423?
Mixed set of results. Pernod missed the consensus and our expectations for the third quarter, but we see some positives: strong Q4 expected and satisfying FY23 guidance
Summary of H123 results A strong set of Q2/H1 results from Pernod Ricard. Q2 LFL sales growth at +11.8% was materially ahead of consensus (VA cons: +7.8%), even allowing for some benefit in the Americas from US shipment phasing. In addition to the Americas, Europe and Asia/ROW also saw Q2 LFL sales growth come materially ahead of consensus. As to H1 profits, LFL EBIT at +11.5% was c.360bp ahead of VA consensus and this helped to deliver a c.4% EBIT beat and c.5% EPS beat. News We highlight that Pernod Ricard expects to finish FY23 with HSD pricing (cf. H1 at +10%). Earnings We revise our FY23e/FY24e/FY25e EPS by +3-4% (primarily reflecting the strong H123 development). Investment thesis We see attraction in Pernod Ricard as being a relatively inexpensive way in which to get exposure to the structurally attractive spirits industry. Rating and target price We maintain our Outperform rating. Our TP moves from EUR222 to EUR231 (reflecting our EPS revisions). 15 questions for management From both a value and volume perspective, what was your US shipment performance in Q2 compared with depletions?
Every quarter we await a negative impact that never comes. Once again this is a very reassuring report with a beat on the last quarter and confirmation of the FY guidance.
º Dynamic Q1 thanks to APAC FY23 sales expected to gain 6.4%
Summary of Q123 sales Q123 LFL sales growth at +11.2% came materially above consensus expectations (co. cons: +9.3%; VA cons: +9.1%). The beat was principally driven by Asia / ROW, with Pernod Ricard commenting upon +9% growth in China (Martell DD) and +21% growth in India. While US growth at +2% was lacklustre, this was due to shipment phasing and underlying depletions were in MSD growth territory. Finally, we note that excluding Russia / Ukraine, volumes grew in all regions. News We highlight that Pernod Ricard commented that it has not seen any change in consumer purchasing patterns either in Europe or anywhere else. Earnings We revise our FY23e / FY24e / FY25e EPS by c.+2-3% (MandA / FX / operational). Investment thesis We like Pernod Ricard on the basis that it is the cheapest way in which to play the structurally attractive western style spirits industry. Rating and target price We maintain our Outperform rating. Our TP moves from EUR230 to EUR225 (with a positive EPS revision being more than offset by a lower target multiple). 15 questions for management What were US volume depletions, both for your business and the industry as a whole?
Despite the Q1 sales beat, there had been fears about the US and an eventual slowdown given the weak organic growth during the quarter. This was quickly dismissed by the management during the conference call: no change in consumer behaviour. For the time being. In any case, the discourse continues to be much more reassuring from the spirits side than from brewers. So we maintain our preference for spirits.
Small beats across the board The FY22 results are slightly ahead of expectations on all key metrics. Pernod delivered FY22 organic sales growth of 17% (consensus +15.5%) and organic EBIT growth of 19% (consensus +18.1%), with organic operating margin expansion of 52bps. The beat at net profit level vs. consensus was 3%. Organic sales growth was driven by Europe +19% and Asia-RoW +19%, with the Americas +12%. The US +8% and China +5% were the only large markets not in double digit growth. China’s performance was affected by the lockdowns earlier in the year. Significant returns of cash Free cash flow was a record €1.8bn (with recurring FCF at €1.9bn), and Pernod’s board has increased the dividend by 32% to €4.12. Net debt/EBITDA fell to 2.4x from 2.6x a year ago. The FY23 outlook expects a return to more normalised levels of growth, with Q1 already making “a good start.” Consensus currently expects organic sales +5.6% and organic EBIT +6.1%. Pernod announced a new share buy-back of €500-750m in FY23. Management hosts a conference call at 9:00am CET (8:00am BST). Q1 sales are scheduled to be released on 20th October.
Q3 sales well ahead of expectations; broad-based growth offsets softer CNY Q3 organic sales are +20% (consensus +14.3%) which is impressive against the +19% comp. The Strategic International Brands were +22% in Q3, while the Specialty Brands delivered an impressive +45% in Q3. By region the Americas grew sales 24% on an organic basis (US +23%), Asia RoW grew 17% (China +8%, India +19%) and Europe grew 20%. All regions beat their respective consensus expectations. Global Travel Retail was +24% in Q3 as growth returned to all regions – though the demand remains well below pre-crisis levels. Chinese New Year was softer due to tough comps and the introduction of additional restrictions. Outlook implies no upgrade The outlook incorporates a softer Q4 as COVID restrictions in China will impact performance in that key market, as well as some phasing in the US and the impact of the war in Ukraine. Management now targets FY22 organic EBIT growth of c.+17% (consensus +16.9%). Management had previously indicated that H2 organic sales should be above the 4-7% medium-term growth rate, and that operating margins would expand. Management hosts a call for analysts and investors at 8am GMT/9am CET.
The business has recovered strongly and is currently tracking 13% above the pre-COVID level on a constant currency basis. After 17% organic sales growth in H1, management confirmed on the call that H2 organic sales are still likely to be above the 4-7% medium-term guidance (INVe +8%) despite starting to face tough comps related to last year’s re-opening. The H1 performance is all the more impressive considering that the Global Travel Retail business, roughly 7% of sales, is still 40% below the pre-COVID level. Management expects this area to slowly recover over time, and we think this should flatter top-line growth slightly. The H2 operating margin is also expected to expand, though not by as much as it did in H1, as investments in A&P will step-up. Data on the performance around Chinese New Year (China is 10% of sales) will not be available until March, as usual. However, the CEO admitted it “might be a slightly softer start” than last year, which was surprisingly strong. The company’s balance sheet is in a much stronger position now, with net debt/EBITDA at a respectable 2.4x and the average cost of debt refinanced down to just 2.2%. FCF was +39% in H1 and management increased the FY22 buyback by €250m, to €750m total. Despite significantly raising our forecasts (FY22E adj EPS is increased 13% and FY23E adj EPS is increased 10%), our DCF still results in a fair value around €150/sh. We apply 23x CY22E PE to arrive at our €180 TP (prev €150); this is a discount to the high 20’s PE of recent years, but is still a premium to the 10 year average of 20.4x NTM PE.
Pricing offsets inflation; double-digit sales growth across all regions Pernod reported strong H122 organic EBIT growth of 22% on organic sales +17% (Q2: +14%, Q1: +20%). The operating margin expanded 147bps on an organic basis. By region, Americas sales grew 14% in H1, while Asia-RoW was +16% and Europe was +21%. Price/mix on the Strategic Brands was +6%, which is encouraging and offset logistics and commodity inflation. Looking ahead, the company expects to increase A&P spend in H2 to support the continued recovery of the on-trade and Travel Retail channels, which will moderate operating margin expansion over the period. The positive momentum in Spirits is expected to continue with “strong” sales growth expected across all regions for the FY, though the comp is significantly more challenging in H2 vs H1. FCF was up 39% in the half. Management has increased the FY22 share buyback by €250m to €750m. We see the shares as fully valued and already incorporating the Spirits industry recovery. There is an analyst call at 9am CET / 8am GMT. Dial-in details: +44 (0) 2071 928338 (Confirmation Code: 7857807).
Strong beat in Q1 Q1 sales grew 20% on an organic basis (consensus +15.7%), a very solid beat. The on-trade channel continues to recover, and Pernod is particularly exposed to this channel. Strategic International Brands grew 24%, Strategic Local Brands grew 15% as Indian whiskies rebounded, Specialty Brands grew 21% helped by the success of recent brand acquisitions, and Strategic Wines declined 7% due to New Zealand supply constraints. The US grew 9% as customers prepared for the festive season. China grew 22% helped by price increases on Martell taken last year and a strong Mid-Autumn Festival. India grew 27% against weak comps and helped by positive mix. Global Travel Retail grew 55% with a return to growth in all regions. Europe overall was +22%, led by a very dynamic rebound in Spain against weak comps. Sales are expected to moderate from the Q1 rate as comps become more difficult. There is no change to the outlook, and although the beat is significant, it is only one quarter so we think consensus upgrades will probably be minor at this stage.
Results a modest beat FY21 organic sales +10% (consensus +9.2%) is a solid performance. Underlying EBIT also beat expectations, and grew 18% organically (consensus +16.2%). Underlying net profit beat consensus by 3%. By region, FY21 organic sales were as follows: Americas +14%, Asia-RoW +11% and Europe +4%. The main beat vs consensus was Americas, with Europe in-line and Asia-RoW slightly light. Net debt/EBITDA decreased to 2.6x. The dividend, which had been paused, is brought back to the FY19 level of €3.12, and the remaining share buyback programme will resume in FY22. Outlook re-energised As the 3-year Transform & Accelerate programme comes to an end, the company has announced new medium-term guidance. Pernod targets 4-7% top-line growth, with a focus on pricing and new operational excellence initiatives. A&P investment will be maintained at 16% of sales. The operating margin is expected to expand 50-60bps p.a. provided the top-line is within the medium-term range. Management will actively manage the portfolio, and will return c. 50% of net profit to shareholders in dividends. Pernod today also announced the acquisition of a minority stake in Sovereign Brands, a super-premium wine and spirits company. A further strategic update will be provided at a CMD in the current financial year. The outlook for FY22 notes that the good sales momentum has continued into the current year, with a very dynamic Q1. Management hosts a presentation at 9am CEST (8am BST).
Pernod issued a trading statement this morning upgrading its profit growth expectation for FY21 (to June). Organic underlying EBIT growth is now expected to be ‘around 16%’, up from ‘around 10%’ previously; we adjust our model accordingly and also factor in recent FX movements (these are fairly minor). We now assume 16.0% organic underlying EBIT growth and forecast adj. diluted EPS of €6.20 (previously 9.6% and €5.78, respectively) in FY21E. While the trading statement does not provide any specific regional detail, we believe the drivers of outperformance are likely to have been China and the US market. Pernod held a conference call yesterday covering the Asia Pacific region and the tone regarding China was quite positive. China sales are now back above FY19 levels with a strong performance from the more premium on-trade establishments (good for mix & margins). As young people were unable to travel home for Chinese New Year, they chose to celebrate locally in cities with their friends, which has boosted activity in bars and nightclubs. The longer-term outlook for growth in China (high single-digit to low double-digit) and India (low double-digit) was re-confirmed. The US has been a resilient market for Alcohol generally during the crisis, and Pernod is skewed more to the on-trade than its peers here. Spending at restaurants in the US jumped to above pre-crisis levels in May, according to data from the US Census Bureau, and OpenTable reported that restaurant reservations exceeded pre-crisis levels in May. Pernod is trading on nearly 25x FY23E (2-year forward) PE, which should reflect a more ‘normal’ year, when the 10-year average for its 2-year forward PE is 17.7x, and the 5-year average is 20x. Despite the better-than-expected momentum, we cannot justify turning positive at this valuation level.
Asia and Europe beat drives modest upgrade Pernod reported Q3 organic sales +19.4% (consensus +11.3%) and 9M organic sales +1.7% (consensus -0.2%). The standout region was Asia RoW (sales in Q3 +36%), but Europe (+5% in Q3) actually had the biggest beat vs. consensus, as demand for Scotch and Specialty Brands was resilient, despite restrictions. Following on from LVMH’s strong performance in calendar Q1, the beat is not altogether surprising; however it is nonetheless indicative of the strength of India (up double digits in Q3), China (+34% in Q3 on a weak prior year comp) and US (continued mid-single digit growth), as well as Europe’s resilience during calendar Q1. The read-across to Diageo is positive. Management increased the FY outlook (to June) from ‘organic sales growth in FY21’ to ‘organic growth in profit from recurring operations of c. +10%.’ Sales are expected to accelerate in Q4. To put the raised guidance into context, consensus was already expecting FY21 organic EBIT growth of +7.1%, implying an upgrade to current year forecasts of about 3%. The company hosts a conference call at 9am CET/8am UK time. Still expensive The valuation remains a challenge (c.30x CY21E PE, c.27x CY22E PE) and keeps us from turning more positive on the stock. The upgrade on the back of an excellent Q3 is not substantial enough to change our view at this point. We await further details on the call.
A good start but questions remain Organic sales -6% are above consensus of -13.1%, driven by Specialty Brands +30% and Strategic Local Brands -6% while the big Strategic International Brands (Absolut, Martell, Chivas etc.) were -10%. The biggest surprise was in the Americas division, where reported sales were 20% ahead of expectations. The off-trade was particularly resilient in the US and Europe. By region, the organic sales development in Americas was +5%, Europe was -5% and Asia/RoW was -12%. India remains in double-digit decline, but China is back in low growth. Early indications from China (+4%) are “strong shipments ahead of the festive season”. We await clarification on this point during the call as it pertains to the upcoming Chinese New Year. Inventories of Martell at distributors in China are still being run down, with double-digit depletion growth, but flat sell-in to the channel. The outlook is uncertain, but management is pleased with the progress in Q1. Ahead of Q1, we had modelled organic EBIT -4.4% in FY21E while consensus was more bullish, with +1.9% organic EBIT growth for the FY. We expect consensus will be largely unchanged for the FY, but it will depend on what additional colour is provided on the call. We note adverse channel and category mix has been mentioned, continuing a theme we observed at C&C yesterday (consumers buying less profitable packs). Management will host an analyst call at 8am UK time.
Amid the gloom of 2020, there were several reasons to celebrate Pernod’s FY results. Several markets actually grew over the year, including the UK (+2%) and Germany (+11%). The Specialty Brands remained in growth (+4%), while all other segments of the portfolio declined. However, these areas in aggregate are small relative to the group. Operating de-leverage was limited by A&P cuts, and the operating margin contracted only 131bps on organic sales of -9.5%. Nevertheless, Pernod impaired €999m of goodwill due to COVID-19; this compares to £1.2bn of impairments at Diageo. It was no surprise that the dividend was reduced, in light of the 32% decline in recurring FCF and the 13% decline in underlying EPS. But we were surprised by the magnitude (FY20 DPS -15% y-o-y). Although Pernod targets a payout ratio of 50% (a target implemented only a year ago), FY20 was clearly an exceptional year. In light of this, we would think management might attempt to reassure the market of its longer-term stability by reducing the dividend by slightly less than the earnings, perhaps by c. 5-10%, as other FMCG companies with payout ratio targets have done during unusually weak years. We adjust our model for the results and FX movements. Our FY21E adj. EPS is now €5.02 (5% higher than our previous estimate, but still 10% below consensus), a y-oy decline of 8% on organic sales -3% and organic EBIT -4%. We cut our DPS for FY21E to -5% y-o-y to maintain a 50% payout ratio. Our DCF nudges up to €109. We raise our TP to €110, which is broadly in-line with our DCF and implies a CY21E PE of 21.2x. We think Spirits companies face a great deal of uncertainty over the medium-term, as consumer behaviours are changing, and we think a PE in the low 20s is appropriate. With significant downside to our target, we maintain our Sell rating.
FY20 organic EBIT -13.7% In line with the recently updated guidance for an organic EBIT decline of “around 15%” in FY20, Pernod reported organic EBIT -13.7% (H1 +4.3%, H2 -45.9%). Adj. EPS of €5.45 beat consensus (latest Bloomberg consensus post trading update was €5.30), with organic sales -9.5% in FY20 (Q4 -36.2%). The operating margin contracted 131bps, mainly driven by the gross margin and structure costs/SG&A de-leverage. Pernod took a €999m impairment on the Absolut brand, where FY sales fell 11% (-24% in H2) as a result of COVID-19. Net debt rose 27% y-o-y to €8.4bn, representing a net debt/EBITDA ratio of 3.2x at the close of FY20 (up from 2.3x at the close of FY19). The proposed FY dividend of €2.66 represents a cut of 15%. The outlook statement is vague, not surprisingly. The off-trade in Europe and the US is expected to remain solid, and India, China and the on-trade channel globally are expected to recover sequentially; Global Travel Retail is expected to be under pressure for some time. Following Diageo’s cautious outlook regarding calendar H2, Pernod’s outlook is similarly cautious in tone. We think the market will take this as broadly in-line. Consensus had recently expected a rebound in organic sales growth to around 6% in FY21, as of the last company-compiled consensus (prior to the trading statement). Management will host a webcast presentation at 9am CET/8am UK time. Regional performance The Europe division reported organic sales -6%, and organic EBIT -1%. Germany, the UK and Eastern Europe actually grew during this challenging year, but Spain, France and Travel Retail were strongly negative. The Americas division reported organic sales -6% and organic EBIT -13%. The US and Canada were strong, but LatAm was quite weak. Pernod is growing just below the market in the US, as it has been hurt by its higher exposure to the on-trade. The Asia/RoW division reported organic sales -14% and organic EBIT -21%. India dragged on performance here, as did China – though Q4 performance in China improved vs Q3 levels. Martell actually had a positive value sell-out in June.
Pernod reports FY results on 2nd September. For FY20E, we expect organic sales -7.0% (Europe -4.3%, Americas -2.2%, Asia/RoW -11.9%); our Q420E organic sales estimate is -24.7% (Europe -19.0%, Americas -12.0%, Asia/RoW -39.0%). India has been worse than expected, with the on-trade still not yet re-opened, and a full 6 week restriction on the sale and production of alcohol. Travel Retail remains severely impacted. China is recovering slowly. The positive areas are the US and Western Europe, where consumers have migrated most of their on-trade consumption to the off-trade channel. However, the full extent of layoffs are yet to be felt so the current level of consumption may not be sustainable. We worry about a medium-term reversal of the premiumisation trend, which has added c. 200-300bps to Spirits organic sales growth over the last 5+ years. We assume another year of negative organic sales growth in FY21E (-3.8%), as we expect consumers may continue to favour the off-trade channel during that period, which would have negative implications for price/mix. Diageo recently guided to a slower recovery than the market had hoped for, with organic sales and profits expected to be down y-o-y in calendar H2, though its on-trade Beer business is an additional drag that Pernod is not exposed to. Nevertheless, we expect a cautious outlook from Pernod management at the results. Our FY21E y-o-y organic EBIT estimate is -8.8%, which assumes variable costs are cut only in-line with the sales decline. After raising our estimates, we are still 18% below consensus adj. EPS in FY21E. We leave our €107 target unchanged, which implies a CY21E PE of 19.8x; in our view, this multiple appropriately balances the short-term earnings risk with the longer-term attractions of Spirits.
Having anticipated downgrades, we leave our €107 TP unchanged despite the significant cut to EPS. Our TP implies nearly 22x CY20E PE, which we feel is an appropriate reflection of the longer-term growth and margin attractions of Spirits balanced against the near-term risks to consensus/sentiment. We are cautious on the recovery trajectory for Spirits. Several Consumer companies have said that the restaurant channel is well below previous levels of activity in China post the lockdown being lifted. A similar situation may well play out in other markets. Travel Retail (c. 8% of Pernod’s sales normally) could take several quarters, or possibly even years, to fully recover. Furthermore, Pernod management indicated that inventory levels were – unsurprisingly – higher than usual in the various channels and warned analysts against expecting a sharp rebound when taking questions on the analyst call. We think Q121 and Q221 will be significantly weaker than previous years’ levels. The Specialty Brands (which are essentially niche and craft) outperformed in Q3 (up mid-single digits) while the large Strategic International Brands were considerably weaker (-20%). This is mainly due to the geographic skew, with Specialty Brands less exposed to China and more exposed to markets where lockdowns happened later (Europe, N America). Assuming no change in the dividend assumptions, net debt/EBITDA should rise to 3x in both FY20E & FY21E. The buyback has been suspended and management recently raised €1.5bn of bonds at attractive rates. Non-essential cash expenditures will be reined in, but like other large Consumer companies, Pernod is expecting to extend more generous credit terms to its more vulnerable customers. The next update is not until 2nd September (FY results).
Sales in-line with lowered expectations Q3 sales fell 14.5% organically (vs consensus -15.9%). The Strategic International Brands sales fell 20% in Q3, hurt by their exposure to China and Global Travel Retail. Asia/RoW Q3 sales were -26%. Europe Q3 sales were -8% and Americas Q3 sales were -1%. The trend since the end of March will have worsened as lockdowns continued (in Q3 they were broadly in effect for 1/3 of the quarter, excluding China which was shut for longer). FY outlook maintained, but uncertainty remains The FY20 outlook for an organic EBIT decline of c. 20% is maintained (consensus -18.7%). Beyond the crisis, CEO Alexandre Ricard states he is “confident in Pernod Ricard’s ability to bounce back from today’s challenges to achieve its growth potential.” The big question for Spirits is how quickly growth will resume once lockdowns are lifted – we suspect this may take longer than the market assumes. Pernod has begun a comprehensive cost mitigation programme, but the business remains broadly operational. Similarly to Diageo, the interim dividend has been maintained, but the remaining share buyback has been suspended. The FY20 results are scheduled for 2nd September. Management will host a call at 2pm UK time/3pm CET.
Off-trade also under pressure Pernod has cut its guidance for FY20 (to June) by nearly 25%. Organic EBIT growth is revised from +2-4% a month ago to -20%; this assumes that the on-trade channel in its markets (which it says account for c. 25% of company sales - a lower proportion than the industry globally, which has c. 25% of volumes and c. 50% of sales in the on-trade) is shut until the end of June. In addition, the off-trade is expected see a simultaneous 10% decline in sales. This is a worse performance than we would have expected, given the likely shift of some on-trade sales to the off-trade, plus an element of stocking up by consumers during lockdowns. Travel Retail (c. 8% of sales) is expected to see an 80% fall in sales during the affected February-June period. China is expected to slowly recover from early April. Next year outlook uncertain There is no comment on FY21 expectations at this stage, but as Pernod (and Diageo’s) year end is June, there is a high risk that the coronavirus could also impact its FY21. Taking action where it can Pernod has donated alcohol and produced hand sanitiser to help with shortages in its markets. Yesterday Pernod repaid a bond 3 months early for €863m. The next significant repayment is $1bn in April 2021. Pernod also has a €3.4bn RCF, with €0.3bn currently drawn.
Management expects the drag on sales from the coronavirus outbreak to slowly recover from around April, with trends back to normal by June. It is possible that demand could stay weak for longer than this, if inventory levels remain high. On the positive side, the company had begun to see some improvement in underlying demand in China towards the end of calendar 2019 in the on-trade channel (which had been hit by government clampdowns earlier in the year). The US business (+4%) is resilient, though the vodka category is still under pressure and the evolution of US tariffs is unknown. Absolut sales were down c.5% in the US in H1, though Jameson, The Glenlivet and Tequila were strong. India has slowed to +5% from an average of 14% organic sales growth over the last 7 years. Flooding and a generally weaker macro led to weaker demand and downtrading. Management still expects to achieve double-digit growth longer term, but near-term growth will be slower than usual. Global Travel Retail -1% was affected by shipment phasing in the Americas and Brexit related stock levels in Europe. The underlying sell-out was good, but this channel will be especially impacted by the coronavirus in Q3. The Luxury brands grew just 5% in H1, a slowdown from the double-digit growth level over the last 2 years. Presumably, this segment has been affected by the phasing-driven slowdown in Global Travel Retail. Net debt/EBITDA has risen to 2.7x at the end of December 2019, from 2.3x at the end of June 2019. The increase is mainly due to M&A and share buybacks. We lower our target price to €156 (from €162) to reflect the cut in our estimates. We argue for a CY20E PE of 22x, the same as for Diageo. The DCF returns a fair value of €141. We move to Sell on valuation.
Results ahead of expectations, but outlook lowered Pernod reported 2.7% organic sales growth in the first half to December 2019 (consensus +2.1%). EBIT grew 4.3% organically (consensus +3%), with margins +80bps (+51bps organic) to 32.7% (consensus 32.3%). Strong pricing of +2% on the Strategic Brands helped to deliver the good growth. Despite the good first half delivery, the FY outlook is lowered, to account for anticipated coronavirus-related weakness, to organic EBIT growth of 2-4% (from 5-7% previously; consensus +6.2%). This assumes a “severe impact” from the outbreak, which management expects will mainly affect its Q3 (January–March 2020). There is a call at 8am UK time/9am CET. Earlier Chinese New Year boosts Asia Pacific China grew sales 11% over the half, helped by the earlier timing of Chinese New Year. India was +5%, but this was against a very tough comp of +24%. The Asia Pacific division overall was +3%, as disruption to the distribution network in Korea weighed on strong growth elsewhere. Americas mixed Americas +2%, hurt by slowing growth in Mexico and Travel Retail. The US continued to be resilient, with sales +4%. Europe robust Europe +3%, driven by improvements in Germany, UK and Eastern Europe. France remained challenging.
Miss but FY outlook maintained Q1 organic sales +1.3% are disappointing (consensus +3.3%), although the comp was very difficult this quarter (+10.4% last year). Reported sales missed by 1%, with Americas a touch light, Asia/RoW nearly 3% light and Europe 2% ahead. FY20 guidance for organic profit from recurring operations growth of 5-7% is left unchanged (consensus +7.9%), and we note that Q1 is typically less important to the FY. However, management does provide the caveat to guidance that the environment “remains particularly uncertain.” Management will buy back up to €150m of shares over the period 18 October-18 December. There is a call at 9am CET. Key markets are resilient The Americas region faced a tough comp after posting +6% last year, and this was combined with the fact that the company has been reducing the weeks of inventory in the channel in the US. Nevertheless, the US grew by an impressive 6% in Q1 – albeit boosted by some advance shipments. Underlying growth in the US of +4% implies no change in the rate of momentum there, but we note the Scotch tariffs will take effect on 18th October. China +6% and India +3% posted solid growth against very difficult comps. In Europe, Western Europe returned to growth in the period. Global Travel Retail -6% was especially weak. Doing the right things Pernod has taken some encouraging steps to enhance profitability. Earlier this month, management announced that it would finally collapse the two separate French businesses into one. The company’s primary ambition remains growth, however. The recent acquisition of Castle Brands and the opening of a Chinese malt whiskey distillery demonstrate management’s commitment to finding growth opportunities in many different corners of the market, many of which have been overlooked by the competition.
Results in-line, outlook a slight disappointment 6% organic sales growth in FY19 is essentially in line with consensus (for +5.7%), and 8.7% organic profit growth is ahead (consensus +8.0%). Asia (+12%) drove the growth, with China +21% and India +20%, while Americas +2% and Europe +1% were considerably slower. Net profit from recurring operations is just shy of consensus. The outlook could be considered slightly disappointing: 5-7% organic profit growth in FY20, while consensus looks for +8.2%. However, the announcement of a €1bn buyback over FY20-21 could offset this somewhat; at the current market cap the buyback represents 2.3% EPS accretion over the 2 years. In addition to the buyback, management clarified the financial policy, which includes more investment in capex and M&A, as well as a 50% dividend payout ratio. The FY19 DPS is €3.12, up 32% yoy. Net debt/EBITDA was 2.3x, down from 2.6x a year ago. Expanding in North America Yesterday Pernod announced the acquisition of Castle Brands (EV c. $275m, 2.8x sales), a US spirits company with a small premium portfolio of brands including Jefferson’s bourbon. This underscores Pernod’s interest in US whiskey, and follows a series of smaller acquisitions in the segment over the past two years. Bringing awareness to Chinese whiskey Today Pernod breaks ground on a new Chinese single malt whiskey distillery that is due to begin production in 2021. This will be the first Chinese whiskey distillery owned by an international spirits company, and Pernod will be appointing the first ever Chinese master distiller. Japanese whiskey has enjoyed international attention with a recent upsurge in demand globally, and it is no surprise that Chinese whiskey is a focus for Pernod (China being one of its top markets). Board changes Pernod also announced the appointment of 2 new independent directors to the Board. Pierre Pringuet, the former CEO of Pernod from 2008-2015, will step down.
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