Pernod Ricard’s share price has faced further pressure after a downgrade to its sales outlook.
Positive momentum in Pernod’s third-quarter results was marred by an Iran war-linked cut to full-year Organic sales expectations. Having previously guided a decline of less than 3%, Pernod now expects organic sales to fall by 3% to 4%.
Shares in the Paris-headquartered group fell just over 2% in early trading on Thursday after the announcement, in the latest blow in a three-year collapse in Pernod’s value.
Now trading at €66.84, the stock has tumbled from a high of around €200 (£174) in summer 2023 in the wake of falling revenues and profits.
Investors’ worries centre on whether the decline of spirits in the key US and China markets is driven by affordability issues, or a decline in consumer appetite.
Pernod’s strategy to cut prices, introduce smaller formats and target convenience was rewarded in Thursday’s Q3 update with a return to positive global volumes (+4%), and a stabilisation of organic sales.
The results have bolstered management confidence that the pressure on spirits is cyclical – but investors will need more proof, said RBC analyst James Eduardes Jones.
“We can’t ignore that the spirits category is beset by challenges, notwithstanding management’s confidence the bulk of these challenges are cyclical – a function of diminished affordability – rather than structural,” he said.
“While the shares are ‘cheap’, until there is greater clarity on the cyclical versus structural debate and/or a reversal in adverse sales and earnings momentum, we expect them to remain so.”
A potential saving grace for the stock has emerged in Pernod’s potential merger with Jack Daniel’s maker Brown-Forman. Since news broke in late March, Pernod’s share price has recovered from a 15-year low of €59.94 to just shy of €67.
The “merger of equals” would create a transatlantic spirits powerhouse with revenues of nearly €15bn. However, negotiations have been complicated by reports in the Wall Street Journal that Sazerac has thrown in a bid for Brown-Forman at $32 per share, representing a 36% premium on the US giant’s share price before merger rumours surfaced.
Analysts including Nadine Sarwat of Bernstein have nevertheless favoured Pernod as the better suitor. She said there was a “stronger strategic rationale” for a deal with Pernod given the geographical and category diversity inherent in the combination – including a reduced exposure to US whiskey.
“A Brown-Sazerac deal would offer none of these advantages,” Sarwat said.
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