Pernod Ricard, a prominent French wine and spirits company, observed a nearly 5% increase in its share price on late Thursday morning. This uptick comes amidst rising expectations that organic net sales will rebound to growth in fiscal 2025, despite a reported year-over-year decline in both net profit and sales for the 12 months ending June 30. The company is optimistic that the sequential volume recovery experienced in the second half of the fiscal year will continue into 2025.
However, it has warned about a potentially soft first quarter, primarily driven by further adjustments in inventory within the United States and a "very weak" macroeconomic atmosphere in China. Analysts from Bernstein noted that while potential cognac tariffs in China are still pending confirmation, the sluggish market conditions could result in a gradual return to normal growth rates for Pernod Ricard. In its latest reports, Pernod Ricard reaffirmed its medium-term financial targets, aspiring to hit the upper end of the 4% to 7% range for organic net sales growth.
Additionally, the company aims to see an increase in organic operating margin by between 50 and 60 basis points. For the fiscal year 2024, Pernod Ricard disclosed a 4% decline in net sales, reaching 11.60 billion euros. This downturn was observed across all geographic regions, largely due to a still-normalizing spirits market in the United States, coupled with a challenging economic environment and persistent weak consumer sentiment in the Chinese market. The total share of net profit for the group fell by 35% to 1.48 billion euros.
This decline was attributed to a reduced share of profit from recurring operations, compounded by increased nonrecurring expenses. Analysts at RBC Capital Markets commented on the results, stating, "While we think it was a bit rose-tinted for Pernod Ricard to categorise these results as 'robust', they were in line with expectations." They expressed skepticism regarding the company's faith in its medium-term financial framework, indicating that it may be overly optimistic about the potential for organic sales growth between 4-7% and a +50/60bps increase in EBIT margin annually.
The skepticism stems from broader concerns surrounding the industry's growth outlook. As of the latest trading data, the share price for Pernod Ricard stands at $134.65, reflecting a change of $+6.1, or an increase of +4.70%..