Diageo and Pernod enjoy sales boom

Both Diageo and Pernod Ricard, respectively the world’s two largest premium alcoholic drinks groups, enjoyed positive starts to 2011. Sales figures for the January to March quarter from both groups easily exceeded analysts’ expectations.

At Diageo underlying sales rose by 7% compared with the same three months in 2010 – analysts had been looking for growth of 2% – while Pernod Ricard’s comparable sales had been predicted to grow by about 2.5% but came in at 5% higher than a year ago.

Together these results confirm a picture of growing global confidence as consumers trade up-market as the recession of 2008/09 slips over the horizon.

The two groups categorise their trading around the globe differently, thus allowing only broad comparisons. But the pattern is of Europe remaining in the doldrums, North America beginning to pick up steam and South America, Africa and Asia providing the main impetus to growth.

Diageo said that the policy of premiumising strategic brands, especially of its Scotch whiskies, was continuing to bear fruit in Asia/Pacific and International markets, which grew organically by 9% and 14% respectively.

Meanwhile Pernod Ricard reported 23% quarterly growth (15% organic) in emerging markets with China and India showing “outstanding growth”. Overall the French group said that it had achieved 11% organic growth of its top 14 brands over the quarter with a positive price/mix effect of 4%.

“Confident” was the word used by both Paul Walsh and Pierre Pringeut in their comments on the results.

Both confirmed their previous forecasts for annual results in the year to the end of June. Diageo is predicting that its operating profits will grow by 2% while Pernod Ricard is targeting about 7%.

Analysts now regard those targets as slightly conservative and the fact that both share prices have risen by about 10% since the trough of mid March suggests that investors share those views.

But while both groups have very clearly defined targets and tactics for their existing portfolios, questions remain about their longer-term goals.

It is common knowledge that Diageo has an iron-clad balance sheet and would like to add to its brand armoury, but only at the right price. Seemingly it has walked away from Stock Spirits because the price being sought was too high, but undoubtedly it is looking to cement market-leading Tequila Jose Cuervo into its armoury.

Diageo has the distribution rights until 2013 but the owning Beckmann family has appointed advisers to consider a sale.

Latest reports say that the Beckmann’s want to swap the brand for a 10% stake in Diageo, which could present ticklish valuation problems for Walsh.

The Beckmanns are said to have put a price tag of $5 billion on the brand, which has annual sales of about $850m. Some valuations say $3bn would be a more realistic price. And history shows that a 10% shareholder can wield disproportionate power in the boardroom.

Meanwhile, despite Pernod Ricard being adamant that it will not enter the takeover market until the summer of 2012, when it expects its post-Absolut debt to be down to normal levels, it is inconceivable that Pringuet is not considering options – and he has long admitted that Tequila is the major hole in his portfolio.

Finance on Friday, 06.05.2011