By Dominique Vidalon
PARIS (Reuters) – French spirits maker Pernod Ricard, which is being targeted by activist investor Elliott, raised its profit outlook on bets cost savings and Chinese demand will offset a slowdown in quarterly sales growth.
Pernod, the world’s second-largest spirits group after Diageo, is hoping cost cuts, expansion into profitable premium brands such as Malfy gin and sustained demand for Martell cognac in China will underpin sales growth and profits.
“We upgraded our ambition for the year. This truly reflects the efficiency of our strategy plan,” CEO Alexandre Ricard told Reuters.
Pernod, which also makes Mumm champagne, Jameson whiskey and Absolut vodka, is now targeting a rise of around 8 percent in profit from recurring operations for its 2019 financial year, at the top of 6-8 percent growth guidance given in February.
Nevertheless, Pernod shares slipped 0.6 percent in early trading. The stock has risen around 10 percent so far in 2019, as some analysts said Pernod’s new guidance was reassuring but in line with what investors were already expecting.
A slight slowdown in Pernod’s sales growth also contributed to the dip in Pernod shares.
“While the guidance for the top of the range is reassuring, the consensus is already on an 8 percent rise for FY 19, so we do not see upgrades from there,” wrote brokerage Liberum.
THESHADOW OF ELLIOTT
Pernod is under pressure from U.S. hedge fund Elliott to improve profit margins and corporate governance.
In February, Pernod vowed to lift its margins and shareholder returns under a three-year strategic plan that Elliott described as a first small step.
Ricard said Pernod was in regular contact with Elliott.
“There is a regular dialogue between the teams, but we do not see them more than other shareholders. My ambition remains to deliver on our strategic plan, that’s my motto,” he said.
Pernod Ricard has announced plans for 100 million euros (£86.5 million) in cost savings to drive this margin expansion. It reiterated on Thursday that it expected to deliver 200 million euros in savings by June, a year ahead of initial target.
Pernod has said its goal for the 2019-2021 period is to lift group operating profit margins by 50-60 basis points per year, provided it could deliver annual organic sales growth of 4-7 percent.
Given its organic sales growth of 6.3 percent in the first nine months of the current financial year, Pernod Ricard said on Thursday that it was looking for a 50 basis points improvement in its operating profit margin for the full year.
(Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Emelia Sithole-Matarise)