Diageo, Pernod beat forecasts with emerging boost
By David Jones and Dominique Vidalon
LONDON/PARIS | Thu May 5, 2011 4:41am EDT
(Reuters) - The world's biggest spirits makers Diageo (DGE.L) and Pernod Ricard (PERP.PA) beat forecasts on Thursday with strong sales growth in the first three months of 2011 as buoyant emerging market growth offset a weak Europe.
Both gained from growth in Asia, Latin America and Africa and gradual recovery in North America which helped to offset weakness in Europe, hit hard by tough economic conditions in Greece, Ireland and Spain, and were confident for the full year.
The figures mark a continued improvement in trade, which picked up in 2010 after suffering throughout most of 2009 when the global downturn prompted consumers to move to cheaper drinks and wholesalers to use up stocks rather than make new orders.
World No. 1 spirits group Diageo, the maker of Smirnoff vodka and Johnnie Walker whisky, reported its third quarter January-March underlying sales rose 7 percent, beating a 1.8 percent consensus in a Reuters poll of 10 analysts.
French rival and world No 2 Pernod, which makes Absolut vodka and Martell cognac, reported quarterly underlying sales up 5 percent, well ahead of the 2.5 percent increase predicted in a poll of 12 analysts.
"These two companies are the most geared into global consumer confidence of the staple stocks we follow. These results are significantly better than we have seen from food and home and personal care companies that have reported in recent weeks," said analyst James Edwardes-Jones at Espirito Santo.
The buoyant quarterly sales reports pushed up Diageo shares 0.8 percent to 12.21 pounds by 0805 GMT and Pernod up 1.8 percent to 68.21 euros and the French group added said it was confident for its current fourth quarter (April-June).
"We are very confident the fourth quarter will be in the continuity of what we had so far," Pernod's Chief Executive Pierre Pringuet told Reuters in an interview, adding that April in Europe including Spain had been "a good month" and North America would continue to improve.
The Paris-based group recorded strong sales growth of 15 percent in emerging markets with China and India showing "outstanding growth" and saw flat sales in mature markets during the quarter as growth in North America offset a weak Spain.
Diageo Chief Executive Paul Walsh said although trading in Europe was challenging, North American consumer trends were improving and its emerging markets were driven by the strength of its scotch whiskies especially around the Chinese New Year and also by the growth of beer in Africa.
"We remain confident that our... marketing investment together with the increased investment we have made in emerging markets in the year will continue to deliver improved performance," he said in a trading update.
Both reaffirmed their targets for the current year. Diageo said it was looking to beat last year's operating profit rise of 2 percent for the year to end-June 2011 and Pernod said it was aiming for an annual profit rise close to 7 percent.
Shares in both companies have risen around 10 percent from mid-March lows on hopes of continued recovery and emerging market growth. Pernod shares are trading on 14.5 times forecast 2011/12 earnings. Diageo is slightly behind on a 14.2 multiple.
On Wednesday, Anheuser-Busch InBev (ABI.BR), the world's largest brewer, suffered a first drop in beer sales for a year and half as price hikes, rain in Brazil and high U.S. unemployment deterred drinkers.
However, the maker of Budweiser, Stella Artois and Beck's said it expected volumes to improve from the second quarter and forecast continued benefits from price rises carried out in its main U.S. and Brazilian markets at the end of last year.