A Little Story of Profits, Sales and Missed Estimates

Pernod-Ricard SA have missed their estimated first half earnings due to increasing its advertising budget to push products in emerging markets.

Their earnings for the 6 months to December 31 rose by 8 %; 1% shy of the increase predicted by analysts.  Yesterday (Feb 17), shared dropped by as much as 4.2% to €67.65 – although the stock has actually gained 19% over the past year.

Chief Executive Officer, Pierre Pringuet, has said that this increase in spending on advertising and promotion is exactly as they stated at the beginning of the year.  In a telephone interview he said “We need to invest more in the fast-developing markets including the U.S., where there are some good signs that the market could recover, even slowly.”

Pernod-Ricard’s competitor, Diageo have also increased the amount it spends on marketing, with an increase of 10% on its organic marketing.  More than half of this is again focused on these fast developing markets of Asia, Russia and other areas.

Both companies are benefiting from the gradual recovery in the USA and a small improvement in Western Europe.

Diageo’s shares have dropped by almost 5% as they also missed their estimated profits, and it has reported a sales and profit growth which are not as robust as that of Pernod-Ricards.

On the flip side, the South African based distiller – Distell – have managed to grow by 3.6% over the 6 months to December 31, and this is despite the global economic downturn and the strong Rand.

Distell, who purchased the cognac brand Bisquit back in 2009 and who are South Africa’s leading producer of spirits, wines, ciders and ready-to-drinks are pleased to report a solid performance which, whilst it is not showing huge profits, means that the company has shown that it is more than capable of holding its own in the international drinks market.

Source: www.bloomberg.com, www.supermarket.co.za, www.distell.co.za