French drinks maker Pernod Ricard SA (PDRDY) left investors nursing a hangover on Thursday, August 31, after it posted earnings before interest and tax of €2.4 billion ($2.85 billion), up 3.3% on the previous year's figure, but down on analyst consensus expectations of €2.42 billion.
Shares in the maker of Absolut Vodka and Jameson dipped 4% to €112.25 in morning trading in Paris, despite posting a 13% increase in net profit over its 2017 financial year and delivering a 7% hike in its dividend. Pernod said it will pay a dividend of €2.02 per share, up from €1.88 last year.
Net profit for the year to the end of June came in at €1.42 billion, missing analyst consensus expectations of €1.5 billion, while forecasts for the coming year also disappointed as Pernod warned that a strong euro was likely to weigh on earnings from North America and Asia.
Pernod struck a generally optimistic tone for the coming year, tipping Ebit to increase by between 3% and 5% at constant exchange rates, driven by continued growth in whisky sales in North America and its Martell cognac brand in China.
Sales in the Americas region climbed 7% over FY2017 led by Jameson, which grew 17% over the period. Chinese sales grew 2% over FY2017, returning to growth after a 9% decline in the previous year. Sales of Martell, which has just over 40% of the Chinese cognac market, ticked up 6% in China over the 12-months to June.
Pernod said free cashflow climbed 22% over FY2017, to a "historic high" of €1.3 billion, boosted by cost cutting across its supply chain, advertising budget and manufacturing. That cash was used to cut net debt by €0.9 billion to €7.9 billion, leaving the company with a net debt to Ebitda ratio of 3.0 at the end of June, down from 3.4 at the end of FY16.
"The results show a solid operating performance with the acceleration in China offering some scope for optimism albeit tempered by a deceleration in Scotch," noted Goldman Sachs analysts including Mitch Collett and John Ennis. "The lower net debt implies a lower interest charge which partially offsets the impact of the FX headwind. Taken together this implies modest downgrades to consensus expectations for net income."
Goldman Sachs's 12-month price target for Pernod is €140 per share.
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