Sales of Pernod Ricard's brands in Ireland have declined as economic difficulties, a severe contraction in consumer confidence and a surge in cross border sales took their toll on the market.
However, the Irish arm of the drinks group, Irish Distillers, said there were some encouraging brand and sector performances in the six-month period ending December 31st 2009. The Jameson brand outperformed the market, while Absolut also grew its sales. The West Coast Cooler brand rose 91 per cent over the period, driven by new products .
The products may have lost sales volume, but Pernod Ricard's product portfolio won on share overall in what it described as a tough environment.
The reduction in excise duty on alcohol announced by the Government on December 9th had a positive effect on the market, reducing growth in cross-border shopping. However, the effect was limited due to its introduction in the final few weeks of the reporting period.
Irish Distillers Pernod Ricard's chief executive Alexandre Ricard said it was a "welcome boost" to the industry.
"Yet again, this six-month period has proven to be a very positive one for Jameson as it continued to benefit from consistent investment and support, as one of Pernod Ricard's international, strategic brands. Despite the economic downturn in most markets, the global growth trend for Jameson remains consistently strong with sales volume +4 per cent and sales value growing +7 per cent, a testament to the success of the brand's premiumisation strategy," he said.
For the wider group, first-half earnings at Pernod Ricard fell 5.4 per cent as shrinking US spirits sales offset strength in Asian markets, but the company said sales were in line with its forecasts.
Paris-based Pernod said net profit from recurring operations fell to €648 million in the six months to December 31st 2009. This compares to €685 million a year earlier, and missed the €659 million median estimate of five analysts surveyed by Bloomberg News. Sales fell by 10 per cent over the six-month period to €3.7 billion.
Pernod was hit by a move towards cheaper brands and lower bar attendances. Currency fluctuations also had an impact, lowering profit by €101 million.
Profit from recurring operations rose 6 per cent in Asia and the rest of the world, driven by sales of Martell in China, local brands in India, adn Absolut's growth in Vietnam, Turkey and South Africa. This was offset by a 22 per cent decline in the Americas region, which is being blamed on the 18 per cent currency effect resulting from the depreciation of the US dollar, and a 2 per cent organic decline from recurring operations in the region.
"We had forecast that currency would be a major drag, but in fact it turned out to be way worse," said Matthew Jordan, head of research at Matrix Corporate Capital in London. Mr Jordan, who has a "hold" rating on Pernod, expects earnings estimates to be reduced by 3 per cent to 5 per cent after the results.
Difficult market conditions in Ireland, the UK and Spain contributed to an organic decline of 5 per cent in Europe, as the proportion of wine sales fell overall.
The Jameson brand, one of Pernod's key brands, gained 7 per cent in value, while Absolut rose 5 per cent and Ricard was up 2 per cent. However, sales from champagne brands including Mumm and Perrier Jouet dipped by 11 per cent and 16 per cent respectively.
"The US remained very difficult, with Absolut and champagne under pressure from down-trading," said Simon Hales, an analyst at Evolution Securities in London. He has a "neutral" recommendation on the stock, and said earnings estimates are likely to be reduced after the results.
Pernod said it expected the western Europe to remain difficult, but predicted recovery in a number of markets, including South Korea and Eastern Europe.
"These factors enable us to confirm our guidance for organic growth of 1 per cent to 3 per cent in profit from recurring operations for the full 2009/10 financial year, while increasing the investment in strategic brands and markets," said Pernod Ricard chief executive Pierre Pringuet.
Pernod fell as much as 2 percent in Paris trading, and was down 21 cents, or 0.4 per cent, to €57.08 as of 10.05am. The stock has climbed 30 per cent in the past year, more than rival Diageo's 23 per cent increase.
Additional reporting - Bloomberg
