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Campari Group (CPRIM: unrated) says US spirits weakness lingers

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  • Campari CEO flagged continuing US weakness into the 3Q on Friday and later clarified it was in reference to the whole sector not company. It saw a firmer +3.5% growth in 1H US sales vs. Pernod -9% (year to June) and Diageo -3% (year to June). Its stock closed -6% and peers Diageo (-2%) & Pernod Ricard (-3%) were weak (SXXP +0.8%).
  • We are cautious on the sector after weak trends and open ended guidance. Still Diageo priced 3-part next to AB-Inbev curve late last month - which surprised us (AB-Inbev is wide moat; largest & highest margin brewer).
  • Guidance from the 3 spirit players below and please note the pending brewer/Carlsberg M&A supply- we expect £1.8b cash short-fall (financed through a bridge facility) to be refi'd eventually.

    • Pernod; FY organic sales to reverse back to growth (after organic -1%/reported -4% to June) and sustain organic EBIT margin (28.4% last year, +80bps yoy).
    • Campari; Outperform industry but ability to expand gross margin will be limited. It will roll over (from 2H last year) a gross 56.7% and adj. EBIT 17.7% margin.
    • Diageo; consumer environment continuing to be challenging - when it improves we will see organic net sales return (reported -0.6% on -3.5% volume fall for year ending June). Expects EBIT margin pressure to continue (contracted -130bps to 29.6% in year ending June).
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  • Campari CEO flagged continuing US weakness into the 3Q on Friday and later clarified it was in reference to the whole sector not company. It saw a firmer +3.5% growth in 1H US sales vs. Pernod -9% (year to June) and Diageo -3% (year to June). Its stock closed -6% and peers Diageo (-2%) & Pernod Ricard (-3%) were weak (SXXP +0.8%).
  • We are cautious on the sector after weak trends and open ended guidance. Still Diageo priced 3-part next to AB-Inbev curve late last month - which surprised us (AB-Inbev is wide moat; largest & highest margin brewer).
  • Guidance from the 3 spirit players below and please note the pending brewer/Carlsberg M&A supply- we expect £1.8b cash short-fall (financed through a bridge facility) to be refi'd eventually.

    • Pernod; FY organic sales to reverse back to growth (after organic -1%/reported -4% to June) and sustain organic EBIT margin (28.4% last year, +80bps yoy).
    • Campari; Outperform industry but ability to expand gross margin will be limited. It will roll over (from 2H last year) a gross 56.7% and adj. EBIT 17.7% margin.
    • Diageo; consumer environment continuing to be challenging - when it improves we will see organic net sales return (reported -0.6% on -3.5% volume fall for year ending June). Expects EBIT margin pressure to continue (contracted -130bps to 29.6% in year ending June).