Morning Note: Market News and an update from Pernod Ricard.
Market News
The dollar moved lower following revised data showing the US economy grew slightly faster in Q2, supported by stronger business investment and trade. The market’s attention now moves to the PCE price index, the Federal Reserve’s preferred inflation gauge, for fresh policy signals. Core PCE is expected to show a 2.9% annual increase in July, the quickest pace in five months. Meanwhile, Fed Governor Christopher Waller said late Thursday he favours beginning rate cuts next month and “fully expects” additional reductions to follow in order to bring policy closer to a neutral stance. The 10-year Treasury yields 4.22%, while gold has broken through $3,400 an ounce.
Brent Crude slipped to $67.50 a barrel on expectations of reduced US fuel consumption as the summer driving season ends, combined with concerns over a global supply glut following the IEA’s recent forecast that supply will outpace demand in coming quarters, and OPEC+ efforts to restore idled capacity.
Vladimir Putin will meet Xi Jinping and Narendra Modi at a Sunday summit in Tianjin to discuss energy ties, as Russia seeks to sustain oil flows to India and secure China’s backing for a new gas pipeline.
Uranium producer Cameco announced a production delay at its McArthur River mine in Canada. The cut will remove 2.5% of primary global production for 2025. This follows last week’s production downgrade from Kazatomprom, the world’s largest producer. The uranium oxide price is currently $75/lb.
US equities moved higher last night – S&P 500 (+0.3% to post another record close); Nasdaq (+0.5%). Dell slumped post-market on weaker AI server sales and tighter profit margins. In Asia this morning, equities were mixed: Nikkei 225 (-0.2%); Hang Seng (+0.9%); Shanghai Composite (+0.4%). The FTSE 100 is currently little changed at 9,209 while Sterling trades at $1.3495 and €1.1565.
Company News
Yesterday Pernod Ricard released results for the financial year to 30 June 2025 which were slightly better than expected. The company reported a lower-than-expected drop in its yearly sales and profit, driven by volume growth and margin expansion. Looking forward, the group is forecasting improving trends from the second half of the current financial year to June 2026. In response, the shares were marked up by 4%.
Pernod Ricard is the worldwide leader in wine and spirits, operating a decentralised structure comprised of a global flagship in France, autonomous affiliates, brand companies, and market companies throughout the world. The company owns a portfolio of over 240 premium brands available in over 160 countries, leaving it well placed to benefit from the trend towards premiumisation. Key brands include Ricard, Pernod, Chivas Regal, Jameson, Glenlivet, Martell, Mumm, Perrier-Jouet, Absolut, Malibu, Beefeater, Havana Club, and Plymouth Gin.
In the year to 30 June 2025, the group operated in a challenging global macroeconomic and geopolitical environment with heightened uncertainty regarding tariffs.
Reported sales fell by 5.5% to €11.0bn. Stripping out the impact of M&A and currency movements, sales fell by 3.0% organically. Declines in China, the US, and Global Travel Retail Asia negatively impacted mix, while many other markets posted a resilient to strong growth, leading to gaining or maintaining shares in most of them. The company enjoyed continued volume recovery (+2%), making it three consecutive half-years of growth.
The Americas suffered a 3% decline in organic sales decline. Within the mix, the US fell by 6%, impacted by subdued consumer confidence and economic moderation. The spirits market, including the ready-to-drink category rose slightly. Brazil and Canada achieved good growth, while Mexico saw a low single-digit decline.
Europe fell by 2%, held back by Spain and Germany. Asia-ROW fell by 4% as growth in India (+6%) was more than offset by declines in China (-21%) and South Korea. Global Travel Retail fell by 13%, driven as expected by the suspension of the duty-free regime on Cognac in China Travel Retail. A gradual improvement in the outlook is expected with the resolution of the suspension.
By brand category, Strategic International Brands fell by 4% with growth at Jameson (+3%), Chivas Regal (+2%), and Perrier Jouet (+8%, offset by declines at Malibu (-10%), Martell (-20%) and Royal Salute (-18%). Strategic Local Brands (+2%) enjoyed solid momentum driven by Seagram’s whiskies, Olmeca, and Kahlúa. Specialty Brands fell by 7%, with growth at Bumbu offset by a decline at Aberlour and Lillet. The Ready to Drink unit grew by 7%, with solid growth across the portfolio of brands.
The gross margin fell from 60.1% to 59.5%, impacted by negative market mix while benefitting from COGS efficiency programmes. Profit from recurring operations fell by 0.8% in organic terms to €2,951m. The operating margin expanded by 64 basis points in organic terms to 26.9%, supported by the completion of the €900m efficiency programme and strong cost discipline. The group is now targetting additional savings of €1bn from FY2026 to FY2029. EPS fell by 8% to €7.26.
Free cash flow rose by 18% to €1.1bn, driven by strong working capital management, leading to an improvement in cash conversion. Net debt fell by €224m to €10.7bn, or 3.2x net debt to EBITDA. The company has declared a dividend of €4.70, in line with last year, amounting to a 4.5% yield.
The financial year to June 2026 is expected to be a transition year with improving trends in organic net sales, skewed toward the second half. A decline in Q1 is expected, driven by a distributor inventory adjustment in the US, continued soft consumer demand, and an inventory adjustment in China. The company now expects an €80m impact from tariffs imposed by the US and China, vs. €200m previously.
Over the medium term (i.e. FY2027-FY2029), the company is projecting organic net sales growth, aiming for the range of +3% to +6% p.a. on average, and annual organic operating margin expansion.
