Get the app today! Download iPhone App Download Android App

SUBSCRIBE

Pernod Ricard Considers US Price Hike To Offset Trade Tariffs

Published on Oct 18 2019 9:00 AM in Drinks tagged: Trending Posts / Pernod Ricard

Pernod Ricard Considers US Price Hike To Offset Trade Tariffs

France's Pernod Ricard has said that it may raise prices on spirits like Glenlivet Scotch whisky to counter US trade tariffs, at a time when it is also grappling with decelerating growth rates in key markets like China and India.

The owner of Mumm champagne, Absolut vodka and Martell cognac posted a steeper-than-expected slowdown in first quarter revenue on weakness in emerging markets and duty-free travel retail, triggering a 3% fall in its share price.

The company, which flagged a "particularly uncertain environment", maintained its full-year profit forecast, however, even when taking into account the impact of US trade tariffs.

It is under pressure from US hedge fund Elliott, which holds a 2.5% stake, to improve profit margins and corporate governance.

European wine and spirit exporters will be hit from October 18 by duties intended by President Donald Trump's administration as punishment for illegal EU aircraft subsidies.

Many are now considering how they can raise prices and remain competitive in the United States. The tariffs, approved by the World Trade Organization, include 25% duties on goods ranging from French wine to Scotch whisky.

Although Pernod Ricard benefited from a share price bounce when it emerged the list excluded blended whiskies, cognac and champagne, the tariff hit will be "significant" in the US, even though it is limited to single malt Scotch and Spanish wine, CEO Alexandre Ricard told Reuters.

The group could raise prices to make up for the higher duties, which will hit brands such as Glenlivet and Campo Viejo Spanish wine, he said.

Finance chief Helene de Tissot told analysts that US tariff risk also "remains a factor" over the longer term as it is not possible to exclude future changes in the list of products targeted.

First Quarter Miss

In August, Pernod Ricard, the world's second-biggest spirits group behind Diageo, indicated it expected a relatively soft first quarter, citing a very high year-ago comparison basis in Asia.

For the first quarter ended September 30, Pernod reported sales of €2.483 billion, a like-for-like rise of 1.3%.

That compared with a growth rate of 10.4% in the year-ago quarter and missed analysts expectations of 3.3 % growth.

"Q1 appears to have missed on travel retail, down 6%, with most other main markets in line with expectations" said JP Morgan analysts in a note.

Sales growth was 6% in China, compared to 27% in the year-ago quarter, with a notable decline in Chivas whisky sales due to challenging market conditions including the closure of some night clubs.

Martell cognac sales in China benefited from a price rise, but sustainable inventory management weighed on volumes, Pernod said.

Its United States arm fared better, making a good start and delivering 6% sales growth in the first quarter. In February, Pernod vowed to lift its margins and shareholder returns under a three-year strategic plan that Elliott has described as a first small step.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

Advertising
Share on Facebook Share on Twitter Share on LinkedIn Share via Email