stock climbed on Wednesday, despite the French spirits maker reporting a profit and sales slump due to the coronavirus pandemic.
The spirits giant said it had taken a €1 billion ($1.19 billion) impairment charge, particularly relating to Absolut Vodka, as the result of the pandemic, which closed bars and restaurants around the world for several months. Full-year net profit fell 77% to €329 million as a result, while profit from recurring operations fell 13.7%, beating analysts’ expectations as cost control measures took effect.
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Pernod, which also owns Jameson whiskey, Martell cognac and Jacob’s Creek wine, said sales fell 9.5% to €8.5 billion in the year ending Jun. 30, declining 6% in Europe and the Americas, and 14% in Asia and the rest of the world. The world’s second largest spirits maker behind
said sales growth in the first half was “robust” but the second half was impacted by Covid-19.
Fourth-quarter sales tumbled 36% to €1.2 billion, as the pandemic hit sales in travel retail as well as bars and restaurants. However, there were signs of improvement in India and China as well as “better than expected resilience” in store and supermarket sales in the U.S. and Europe.
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Pernod failed to offer any specific guidance but Chief Executive Alexandre Ricard expected “continued uncertainty and volatility,” warning that the virus would impact social gatherings in the months ahead and economic conditions would also be challenging. Ricard said: “We anticipate a prolonged downturn in travel retail but resilience of the off-trade in the USA and Europe and sequential improvement in China, India and the on-trade globally.”
Looking ahead. “Given the slightly better earnings delivery and improving trading backdrop in China, Pernod remains our preferred spirits stock pick,” Citi analyst Simon Hales said, while also warning that the sector was at risk of consumers snubbing premium brands in an economic downturn. Hales said there were limited positives for the sector, preferring soft drinks and beer ahead of spirits.
Pernod stock rose more than 3% in early trading and is now just 8.5% down year-to-date, as investors welcomed the earnings beat and trading improvement. The reopening of bars and restaurants around the world will certainly help, and the popularity of drinking at home should continue, but the recovery is likely to be gradual rather than V-shaped with much uncertainty ahead.