Pernod warns weak US, China will weigh in years to come

By Dominique Vidalon and Emma Rumney

PARIS/LONDON, Aug 27 (Reuters) - Pernod Ricard reported steep sales declines in China and the U.S. on Thursday and said it now expects to achieve only the lower end of its long-term sales target through 2029, underscoring the prolonged downturn facing global spirits makers.

Shares in the French wine and spirits group fell more than 6% as CEO Alexandre Ricard told investors the U.S., its largest market, offered little potential over the next three years, weighing on overall group performance.

The maker of Martell cognac and Absolut vodka, which held unsuccessful merger talks with Jack Daniel's maker Brown-Forman earlier this year, now expects sales growth at the lower end of its 3% to 6% target range through 2029.

"The assumptions that drive that kind of outlook are based on a U.S. market which is not in growth over that period and which is quite soft," Ricard told Reuters in an interview.

However, he said Pernod's broad geographic footprint should help support performance in the coming years.

Prospects for its current fiscal year, which started on July 1, look even more subdued. Pernod, the world's second-largest spirits maker after Diageo, forecast broadly stable organic net sales, with trading conditions in the U.S. and China expected to remain challenging in the first quarter.

Sales in the U.S. and China fell 14% and 19%, respectively, in the year ended June 30.

NO BIG SURPRISES

Bernstein analyst Trevor Stirling said Ricard's comments on the U.S. were expected after Diageo said earlier this month that the market would remain negative for the next three years.

There was no "massive surprise" in the results to justify the share reaction, he added, given Pernod's performance and guidance were in line with expectations and peers.

Spirits makers across the industry are grappling with a multi-year sales downturn that has eroded valuations, triggered management changes and prompted asset sales and cost-cutting.

Ricard said Pernod expects to complete its €1 billion ($1.2 billion) restructuring programme a year ahead of schedule and had cut around 3,600 jobs since its 2024 financial year.

He also told investors the board was discussing a potential initial public offering of the group's Indian business and had already taken preparatory steps. India has overtaken China as Pernod's second-largest market.

($1 = 0.8580 euros)

(Reporting by Dominique Vidalon in Paris and Emma Rumney in London. Editing by Tomasz Janowski and Mark Potter)