French spirits maker Pernod Ricard, which is being targeted by activist investor Elliott, unveiled a share buyback programme and new investments in China and the US as it posted profit growth that beat forecasts.
Pernod, the world’s second-biggest spirits group behind Diageo, handed investors a 32% dividend hike and unveiled plans to buy back up to €1 billion ($1.1 billion) in shares, sending its shares up 3% to record highs. It also appointed two new independent board members.
In the US—its largest market where it now makes 18% of sales—Pernod strengthened its bourbon whisky portfolio with the $223 million acquisition of Castle Brands.
Pernod Ricard is under pressure from US hedge fund Elliott, which has a 2.5% stake, to improve profit margins and corporate governance. For the year ahead, Pernod Ricard struck a cautious note, citing a “particularly uncertain environment”.
It predicted a “soft” first quarter due to unfavourable comparisons in Asia, but it also forecast a dynamic start in the US after a flat performance so far this year.
Speaking to Reuters, finance chief Helene de Tissot cited fears of a no-deal Brexit, and trade disputes between China and the US and US threats of tariffs on Europe as negative factors. “This could have an impact on us and we are closely monitoring the situation,” she said.
Pernod reported profit from recurring operations rose 8.7% to €2.58 billion for the fiscal year ended 30 June. That was ahead of its own forecast of 8% profit growth and an acceleration from 6.3% growth in the 2017-18 fiscal year.
The firm forecast underlying profit growth from recurring operations of 5-7% for the year ending 30 June 2020.
Pernod shares rose around 3% to €171.55, as analysts welcomed the company’s latest set of figures and share buyback, in spite of Pernod’s slightly cautious outlook. “We suspect management are being prudent, rather than this being a signal of weaker underlying trends. In particular, we note that guidance for FY19 also started at between 5%-7%,” wrote brokerage Bernstein.
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. Elliot representatives said they had no immediate comments.
Source: Mint