PARIS Pernod Ricard (PERP.PA) said it was buying Kenwood Vineyards to beef up its premium wines portfolio in the United States, the French drinks company's biggest market, and was looking for more small-scale acquisitions.
The world's second-biggest spirits group behind Britain's Diageo (DGE.L) said on Thursday it still expected demand in China, where sales sank 28 percent in its financial third quarter, to stay weak and kept a target for slower full-year profit growth.
The acquisition of Sonoma Valley, California-based Kenwood, worth less than $100 million, would allow Pernod Ricard, to join the top 15 U.S. wine makers and gain share in a U.S. market that Chief Financial Officer Gilles Bogaert said was "very fragmented".
Pernod Ricard already owns premium wines such as Jacob's Creek in Australia.
Since Japan's Suntory snapped up U.S. bourbon specialist Beam BEAM.N for $16 billion in January, there has been speculation about more consolidation.
Analysts have said U.S. drinks company Brown Forman (BFb.N), known for its Jack Daniel's Tennessee whiskey and smaller brands including Southern Comfort and Herradura tequila, could be a target for the likes of Pernod, Diageo or Bacardi BACLTD.UL.
"We are open to tactical acquisitions of premium brands such as Kenwood. We are looking at other potential assets but we are not open to large transforming deals," Pernod Ricard Chief Financial Officer Gilles Bogaert said.
Since its last major acquisition - the purchase of Swedish group Vin & Sprit, owner of Absolut Vodka, in 2008 for 5.7 billion euros - Pernod has focused on cutting debt.
Net debt was 8.6 billion euros at end-December 2013, giving a net debt to EBITDA ratio of 3.6 times against 6.2 times after the Vin & Sprit deal.
LASTING CHINA WEAKNESS
Pernod Ricard reported sales of 1.62 billion euros ($2.2 billion) in the three months ended March 31, flat year-on-year on a like-for-like basis and slower than its 2 percent annual growth rate in the second quarter.
That was below the analysts' average estimate of 1.2 percent growth and reflected weakness in China where like-for-like sales sank 28 percent after falling 18 percent in the first half, due to destocking in response to sluggish demand.
Pernod Ricard makes 12 percent of sales and 15 percent of profits in China. Asia accounts for around 40 percent of its sales and 46 percent of profits.
Like rivals Diageo and Remy Cointreau (RCOP.PA), Pernod has been hit by a Chinese government crackdown on luxury gift-giving and personal spending by civil servants as well as by slowing economic growth in its second-biggest market.
Pernod, the owner of Mumm champagne, Absolut vodka and Martell cognac, warned last month that demand in China could stay sluggish until 2015.
Recent trading updates from Diageo and Remy Cointreau have showed further pressure on the Chinese market as the government drive against corruption and extravagance intensified recently.
Pernod kept its forecast of underlying operating profit growth of 1 to 3 percent for the full year to June 30, slowing from 6 percent growth in the previous year.
Its shares were down 0.4 percent, in line with European peers .SX3P.
"We see neither improvement nor further deterioration in China. Calendar year 2014 will stay difficult in China. The precise timing of the recovery remains uncertain," Bogaert said.
($1 = 0.7231 Euros)
(Reporting by Dominique Vidalon, additional reporting Pascale Denis,; Editing by Erica Billingham)