UPDATE 2-Pernod stands by growth forecast after China sales drop

Thu Apr 25, 2013 6:09am EDT

* Q3 sales 1.74 bln eur, up 6 pct l/f/l vs poll 7.3 pct

* Asia slows in Q3 with weak Chinese New Year, U.S. robust

* CFO says still expects China sales up 9-11 pct this year

* Co keeps goal for FY operating profit growth around 6 pct

* Shares down 2.4 percent (Recasts with China expectation, adds share price, analyst and CFO comments)

By Dominique Vidalon and Pascale Denis

PARIS, April 25 (Reuters) - French spirits maker Pernod Ricard said it still expects Chinese sales to increase in the current year after a weak quarterly performance revived concerns about prospects in its second-biggest market.

Investors had been cautious about Pernod's trading in China after the group, owner of Mumm champagne, Absolut vodka and Martell cognac, last month flagged that its Chinese New Year business had slowed compared with last year, due in part to a government clampdown on luxury gifts.

Yet some analysts said the slowdown in Asia - which included a 2 percent fall in Chinese sales - was worse than expected. "We were not sufficiently pessimistic on Asia," analysts at brokerage CM-CIC said in a note.

Shares of Pernod, the world's second-biggest drinks group by sales after Britain's Diageo Plc, were down 2.8 percent by 1001 GMT, reversing gains of the past four sessions.

Pernod, which makes about 13 percent of its sales in China, making it the group's second-biggest market after the United States, said it still believed Chinese sales would be up in the current year as a whole.

"We should have like-for-like sales growth of between 9 percent and 11 percent in China over the whole year," Chief Financial Officer Gilles Bogaert told Reuters, referring to the company's fiscal year through June.

SHARP SLOWDOWN

Overall, Pernod's Asian business achieved an underlying sales rise of 2 percent in the group's third quarter through March, marking a sharp slowdown from 11 percent in the first half.

The slowdown is significant because Asia is a key engine of Pernod Ricard's growth, accounting for more than 40 percent of group sales and operating profit.

Pernod's first-quarter downturn in China echoed recent updates from drinks makers including Diageo and Remy Cointreau , which confirmed slowing demand in emerging markets.

In addition to the broad slowdown in economic growth in China and other regions, luxury goods demand in China has also been crimped by the government clampdown on lavish gift-giving by officials, part of anti-corruption efforts.

A survey in January found the measures, introduced just over a year ago, had pushed expensive liquor and high-end watches out of favour in the luxury gift-giving market.

Pernod said demand had also weakened in Vietnam and South Korea, while the U.S. market was robust but slowed slightly.

Total revenue reached 1.74 billion euros ($2.3 billion) in the three months to March 31, a like-for-like rise of 6 percent which fell short of the average of analysts' estimate of 7.3 percent growth.

Pernod Chief Executive Pierre Pringuet said the company stood by its expectation of around 6 percent profit growth from continuing operations in the current year.

"Pernod Ricard's business demonstrated good resilience in ... a less favourable economic environment." Pringuet said in a statement. ($1 = 0.7695 euros) (Editing by James Regan and David Holmes)