Pernod says China weakness hurts sales, makes U.S. buy

Written by Reuters | Paris | Updated: Apr 24 2014, 19:16pm hrs
French spirits maker Pernod Ricard posted weaker-than-expected third-quarter sales on Thursday, hit by persistent weakness in its major Chinese market, and kept a target for slower full-year profit growth.

The world's second-biggest spirits group behind Britain's Diageo also said it had agreed to buy Kenwood Vineyards in Sonoma Valley, California, to beef up its premium wines portfolio in the United States, its top market.

"This transaction illustrates Pernod Ricard's ability to seize tactical growth opportunities that can benefit our entire portfolio in key markets such as the United States," Chief Executive Pierre Pringuet said in a statement.

Pernod Ricard posted sales of 1.616 billion euros ($2.2 billion) in the three months to March 31, flat year-on-year on a like-for-like basis and slower than its 2 percent year-on-year growth rate in the second quarter.

This was below the average of analysts' estimates of 1.2 percent growth.

On a reported basis, quarterly revenue fell 7 percent on the year due to weaker currencies notably in emerging markets.

Pernod, the owner of Mumm champagne, Absolut vodka and Martell cognac, 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.

Like rivals Diageo and Remy Cointreau, 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.

Investors had been cautious about Pernod's trading in China after the group warned last month that demand in China could stay sluggish until 2015.

Recent trading updates from Diageo and Remy Cointreau also showed further pressure on the Chinese market.

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 annual profits.