Pernod seen cutting profit outlook on weak China
PARIS (Reuters) - Pernod Ricard (PERP.PA) is widely expected to cut its full-year profit goal when it reports first-half earnings on Thursday, reflecting weak demand in China, its second-largest market.
The world's second-biggest spirits group is on course for 2.3 percent growth in underlying operating profit in its financial year to June 30, according to a Reuters poll of six analysts - half the 4-5 percent forecast the French company gave in October.
Since its October guidance, trading updates from rivals Remy Cointreau (RCOP.PA) and Diageo (DGE.L) have revealed further pressure in the Chinese market and stirred doubts about Pernod's ability to hit its target.
"Given underlying uncertainty, Pernod Ricard might lower or even remove its full-year 2014 guidance," JPMorgan analysts said in a note.
The investment bank estimates organic earnings before interest and tax (EBIT) will grow by only 0.9 percent because of "continued difficult trading conditions".
Nomura analyst Ian Shackleton, who expects 1.5 percent EBIT growth for the year, said his forecast assumed a 30 percent decline in China profits with no quick rebound.
Pernod Ricard makes 12 percent of its sales in China, second only to the United States, but it has been hit by a Chinese government crackdown on luxury gift-giving and personal spending by civil servants, as well as slowing economic growth in the world's second-biggest economy.
UBS analysts estimate that China accounts for 15 percent of Pernod's earnings before interest and tax (EBIT) and that 20-25 percent of the group's Chinese sales come from gift-giving, banqueting and karaoke bars, which have been hit by the toughened stance on prestige drinks.
In October, Pernod reported a double-digit fall in Chinese sales for its first quarter, to September 30, amid weak demand for its Martell cognac and Ballantine's whisky.
It also flagged a weak first half, predicting demand in China would improve from the second half.
In late January, Remy Cointreau reported a 32 percent fall in cognac sales for the quarter to December 31, mostly because of China, while Diageo posted a 22 percent fall in total Chinese sales in its first half.
A survey compiled by Pernod in early January gave a consensus forecast of 3.4 percent full-year growth, but the company declined to comment on Tuesday.
Analysts polled by Reuters expect the group's first-half underlying sales to be somewhere between flat and 1.6 percent lower, with underlying EBIT flat to 2.7 percent lower.
Pernod's survey predicted 0.4 percent like-for-like EBIT growth and 0.9 percent like-for-like sales growth in the period.
Pernod trades at 16.58 times 12-month forward earnings, against 22.58 times for Remy and 16.93 times for Diageo, a discount that already prices in some of the Chinese woes.
(Editing by David Goodman)
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