Pernod Ricard (RI:EPA) Q3 2026 earnings call transcript

Good morning, and thank you for joining our FY26 Q3 net sales call. I'm Joelle Ferrand, VP of Investors Relations, and I'm pleased to welcome Hélène de Tissot, our global EDP finance and tech. Hélène will begin with a brief overview of our Q3 performance, after which we'll open the call for questions. Please note, unless otherwise stated, all sales growth figures discussed today refer to organic net sales.

With that, I'll hand it over to you, Ellen.

Thank you, Joelle, and good morning, everyone. Before I begin discussion on our Q3 sales results, I will say a word regarding our first release of 27th of March, in which we confirm discussions are taking place regarding a potential business combination with one firm. As stated, we did not intend to communicate further until either an agreement is reached or discussions are terminated.

Discussions are ongoing, so at this stage, I have no further comments to make. Returning to the topic for our core of sales performance in Q3, today we report, as expected, a sequential improvement in organic sales in Q3 compared to H1 with plus 0.1%. Reported sales are down minus 14.6%, with negative effects at minus 7% and perimeter impact of minus 7.7%. The effect is mainly due to U. S. dollar, Indian rupee, and Turkish lira, and the perimeter effect is due to the disposals of our wines, the interior blue business, and finished brands.

Volumes in Q3 are back to growth with plus 4%, within which, and important to note, we have strategic international brand volumes growing in Q3 at plus 3%. When excluding the U. S. and China markets, which contracted minus 12% and minus 7% respectively, sales in the rest of the world are growing strongly at plus 5%. Sales have improved in markets across all regions in Q3, with strong momentum in emerging market and continued growth in several mature markets.

Markets that have turned growth in Q3 include travel retail at plus 11%, UK, mid-single-digit growth, Spain, double-digit growth, Korea, double-digit growth, and Brazil, low-single-digit growth. Markets in which organic growth momentum is maintained or is accelerating include India, press 11%, Japan, high single-digit growth, and Turkey, double-digit growth. We are exploiting evolving consumer trends to capture growth. This includes actions that address consumer trends and needs, including, for example, addressing affordability with revenue growth management, smaller formats, and standard and premium brands, experiences with music festival activations, convenience, including through RTV and through targeted store activations, and broadening the consumption's occasion with a launch of no and low alcohol products.

Moving now to our year-to-date performance. Year-to-date organic sales are down minus 4.4%, with the U. S. minus 14%, and China minus 24%. Reported sales are down minus 14.8%, with FX negative minus 5.9%, and perimeter minus 4.5%. Excluding the U. S. and China, sales in the rest of the world are in growth plus 1%. Volumes year-to-date down minus 1.6% in total, of which strategic international rebrand volumes are down minus 1.4%. when excluding the U. S. and China markets.

Strategic international brands' volumes are up plus 1.4%. We are actively managing what is within our control, adapting our resources with agility, deploying our efficiency programs, steering the organization to fuel our future growth, and optimize our cash generation.

The global environment remains volatile and uncertain, notably with a conflict in the Middle East. In these circumstances, along with our diversity five premium brand portfolio, we benefit from our balance and growth-based geographic footprint. Our direct exposure to the Middle East is circa 2% of group sales. We expect a full year of sales to be impacted. Though the scale will naturally be dependent on the duration of the conflict, I will return to this in an updated outlook.

We are monitoring this situation closely. Turning now to take a closer look at sales in our markets and regions, beginning with our number one must-read market, the U. S. , we have organic sales down minus 12% in Q3 and minus 14% year-to-date. Market conditions in the U. S. remain soft, with the spirit market excluding RTD down circa minus 5%, compared to circa minus 3% one year ago.

After a soft Q2 holiday season, Q3 bubble spirit market performance improved to minus 4%, slightly ahead of the year-to-date trend. The on-trade channel is performing better than the up-trade, demonstrating that channel's relevance for consumers who are prioritizing experiences and social connections. Gains made over the past year in our sell-out gap-to-market were sustained in Q3, with that gap holding at circa two points.

Consumer sentiment in the U. S. remains low and affordability remains a key issue for some consumers. We see shoppers readily expand on discretionary items. We are adapting to these changing conditions, for example, with small pack sizes and targeted promotional investment on key brands so our products remain relevant and affordable for consumers. We have as well launched significant innovation in 1526, recruiting new consumers and maintaining desirability and bringing incremental value to our customers.

Notable recent examples include absolute tabasco, targeting key evolving consumer occasions such as brunch and expanding the absolute drink strategy to where serve such as the Bloody Mary or spicy lemonade, which particularly lean into daytime consumption occasions. Within the Jensen family, we launched Jensen Triple Triple, expanding our Jensen offer for whiskey enthusiasts and leveraging a more affordable up-sale opportunity.

And as well, MallyDoo Pink for fun, flavored recruitment of new consumers. We believe that our growth portfolio is well-positioned within the U. S. market, and we continue to activate our brands to meet consumer needs across price points. We are maximizing the consumer impact and value creation of price promotions. Our teams leverage our revenue growth management expertise and AI tools to plan and execute those promotions at the optimum depth and frequency.

While the U. S. market remains soft, we are convinced that the current challenges are primarily cyclical linked to affordability issues. issues. However, we are not complacent, and we monitor with vigilance the changing consumer trends, adapting and flexing our brand strategies in response. We remain confident in the recovery of the spirit market.

Moving to India, our number two market by net sales, with double-digit organic sales growth in Q3, plus 11%, year-to-date, plus 6%. When excluding Imperial Blue, year-to-date, sales are growing by 9%. I remind you that the interior goods is probably closed end of November, so sales are excluded from organic performance since December.

The Indian market continues to enjoy dynamic consumer fundamentals, and sales benefit from strong underlying demand and continuing premiumization. Growth in Q3 is growth-based across the portfolio, with important spirits in strong double-digit growth, including Jameson, Absolute, and Scotch brands, the Denny Vets, Shivas, and Rolosalute, and with strong growth from local brands, especially Brands Pride, and with the launch of the new Exclamation Ranch of Spirits.

Moving to China, organic sales in Q3 contracted minus 7%. Year-to-date is at minus 24%. Q3 sales benefited from the later timing of Chinese New Year. However, underlying sell-out was soft in line with the cautious sentiment of the trade ahead of the festive period. The market is not yet stabilized. The macro context remains challenging with weak consumer confidence and tightened regulatory environments.

Year-to-date sales of Martel and Vendor Scotch whiskeys are declining, while premium brands enjoy positive sales momentum. Let's move now to global travel retail. Global Travel Retail Q3 organic sales are in growth plus 11% and plus 2% year-to-date. Global travelers' numbers remain strong and continue to present positive dynamics with all regions showing travelers' numbers ahead of pre-COVID. Within this positive environment and as expected, sales in global travel retail are rebounding with a resumption of cognac sales in China duty-free.

Sales in Asia also benefited from an active festive marketing program celebrating Chinese New Year, including favorita limited editions, leading to strong double-digit sell-out growth for Martel over the period. I am encouraged to see Chinese traders demonstrating enduring strong attraction and consideration to WebMartel and our ability to engage with them through impactful activations. Remaining in Asia with duty I also want to highlight that Korea duty is now back to growth this quarter Elsewhere Europe and the Americas continue to present positive momentum in sell notably cruises in the Americas As you can imagine, the Middle East faces travel disruptions as a result of conflict there, and full U. S. sales in global travel retail are now expected to be in slight decline.

In the rest of the world, and beginning with markets in Europe, we see conditions improving in a number of important markets there. Organic sales in Europe are back to growth in Q3 with prescribed descent, including in Spain, which benefits from the earlier Easter, also back to growth in the UK, and with growth continuing in Ireland as well as in Eastern Europe.

France and Germany continue to decline in Q3. In Asia, West of the World region, Q3 organic sales are in growth at the 6%. Focusing on Asia, when we exclude India and China, sales grew strongly in Q3 with double-digit growth, benefiting from the timing of Chinese New Year in some of the Southeast Asian markets. Here, Japan continued its good momentum, and Korea, which was in decline in the first semester, is now back to growth, supported by the timing of the Lunar New Year.

In America, Brazil is back to growth this quarter, following the easing of the impacts from the methanol crisis. Canada continues to enjoy its good momentum. And finally, in Africa and Middle East, which is in mixed organic growth, Q3, these organic growth continue notably in Turkey, and strong underlying momentum continues in South Africa.

Now, moving to our outlook. In a context that remains volatile and uncertain, we continue to see fiscal 26 as a transition year, and in line with our expectations, organic net sales strongly improved in Q3. Given the ongoing conflict in the Middle East, we now expect organic net sales to decline by minus 3 to minus 4% for the full year.

The ENP investment ratio expected to remain at circa 16%. We continue to invest to increase our brand's desirability with sharp allocation, efficiency, innovation, and experiences. We continue to defend our organic operating margin to the fullest extent possible, supported by strict cost control and the implementation of our Fiscal Year 26 to Fiscal Year 29 1 billion operational efficiency program, including the adaptation of our Fit for Future organization.

I remind you that we are on track to deliver one-third of those efficiencies within this fiscal year. Our focus on cash generation continues with strategic investments for fiscal year 26 now expected to be below 700 million euros and maintaining strong operating working capital management. We are aiming for cash conversion of circa 80% and above this fiscal year.

We expect FX impact to be significantly negative. In conclusion, we have two of our former green markets in strong growth in Q3, with growth in India accelerating and with a rebound in global travel retail. We have markets that are maintaining their already positive momentum, such as Canada, Ireland, Turkey, and Japan, And we have markets that are now coming back to growth, having declined in H1, including the UK, Korea, and Brazil.

I believe this demonstrates the resilience of our diversified model from both the portfolio and geographic footprint point of view, the key strength of the Pernod Car business model. On that note, I will now conclude my prepared remarks.

Thank you, Hélène. We will now take your questions, but please, I must ask you to respect that this call is to discuss Q3 sales results, and we won't be able to address any question regarding brand performance. So no more than two questions each, please. Over to the operator.

So I will try to give you two answers to what I believe is more like five questions, but I will manage your expectations. So first, let me clarify what we are facing, especially I think the first question is mainly on the impact on the conflict in the Middle East. So that's true that there was already some impact in Q3, especially obviously the month of March, which has been significantly disrupted, especially in the affected area. So it's not a big impact on the Q3 performance, but to give you some color, if there was no conflict in the Middle East, Q3 would probably have been more close to, let's say, something like plus 0.5, 0.6% growth.

So the impact, obviously, is, again, mainly in the affected area in March, both domestic markets and travel retail. When it comes to the distance to go and the Q4 in travel retail, it's fair to assume that as far as we speak today, the conflict is in place. It has some disruption, of course, in the affected areas. There could be as well some limited, I would say, secondary impacts outside of the affected areas, especially when you think about logistics as well as limited disruption in terms of supply probably as well as an impact in terms of caution in willingness to travel. That's what we are taking into consideration to modestly, I would say, change the outlook for the year.

Your second question was, I think, in terms of technicalities in Q3. I would say when you take all those positive and negative elements, technical ones, it's probably more or less neutral. You mentioned some of the favorable impacts, you're absolutely right, with the earlier Easter. This is, for instance, definitely the reason why Spain is back to growth in Q3 where the market is still under pressure, and this will, in a way, reverse as it's normalized in Q4.

Chinese do you, of course, as well, you're right. This is a later timing compared to last year, but please keep in mind as well that last year there was a kind of significant impact of the tariff uncertainty, especially in the U. S. , that has brought our shipments a bit higher than what would happen without the, I would say, Liberation Day event. So all in all, that's more or less neutral.

And the improvement that we were expecting and that we have delivered in Q3 are absolutely not technical. They are real.

When you mentioned then Q4, I think in the U. S. , So, obviously, our focus is to keep closing the gap. This is the market. I mentioned in my introduction that the gap now is at circa two points, and we are holding that gap. There's lots of excitement in the team when it comes to Q4 activation program.

Maybe let me name a few. We have more to come with the exciting partnership with Major League Soccer with Jemison. There's as well a lot happening in some of the festivals with Coachella and some other musical festivals in Q4 where our brands would be very well curated especially absolute but not only absolute We have as well a very strong innovation pipeline in the days and weeks to come We launched Absolute Tabasco, as well, and Absolute Ocean Spray, new flavors in the weeks to come. So lots of excitement and busy activation for our brands and our portfolio in the U. S. in Q4.

You were, I think, asking as well a question on promotions. Obviously, this is an environment which is quite busy in terms of promotions, and we are actively leveraging our capability as well to make sure that all our promotion efforts are extremely efficient and, I would say, targeted. And this is obviously part of what keeps our team busy for the weeks to come in the U. S. and elsewhere.

Excellent. Thank you so much. Thank you.

So your first question? You're certainly right. When you look at Q3, there's a very positive growth momentum for volume, which means that price mix is under pressure. I wouldn't consider that this is deteriorating when it comes to price. It's quite subdued, the price environment as we speak, but no deterioration to flag. the mix is obviously negative especially when you think about the US and China which as you know this is as well quite different from our underlying performance in both markets with the inventory adjustments that we were flagging from the beginning of this fiscal year that are impacting our selling versus the underlying demand so So this has, I would say, an additional negative impact in terms of price mix.

But price is subdued and negative mix is mainly to market mix. The second question in terms of the impact on the conflict in the Middle East on our margin and a bit more specifically, the exposure to the energy cost. So first, let me say that for the fiscal year 26 operating margin, which we are not changing, we want to protect it as much as we can.

This conflict should not have a significant impact. And the reason for that is that, as you alluded to, we have some hedging instruments in place that are protecting us from the exposure of the spot price volatility. On top of that, as you know, the impact that could hit us in terms of red goods would be for a significant part in terms of P&L impact because of the aged portfolio that we have. So all in all, no significant impact for the margin protection by Fiscal Year 26. Thank you very much.

Yes, thank you. So first question, in China, so it's sure that the, to be fair, the environment is not evolving significantly and the consumer confidence remains quite weak and we don't see yet any tangible evidence of an improvement. so the underlying sellout is running at quite similar rates in Q3 than they were in H1 so with no improvement in consumer demand so for Chinese New Year it's been I would say a bit contrasted because it's been soft in China as expected and very much in line with the trade sentiment that we were sharing in our H1 community but it's been quite strong in duty-free.

So it shows as well that Martel is a very strong brand and when Chinese consumers are, I would say, in a more confident mood, especially when they travel, they have a quite positive consideration towards Martel. To be fair, we've been as well quite busy in activating Martell in Asia Duty Free, with as well strong limited editions that have been quite successful. But globally, Cognac category, as a whole, remains under pressure during Chinese Leveur, especially in the South region, which is, as you know, quite important for the Cognac category. When it comes to Q4, Q4 is a quarter where it's a low quarter, and it's not a big quarter in terms of seasonality for Martel. So we expect Q4 to be in a modest growth when it comes to China, with the strong positive momentum on our premium brands to continue.

So your second question was The second question was markets ex-US and China where you're genuinely seeing improving momentum, excluding phasing comps, etc. Yes, so first, as I said in the first question I don't think you should be distracted by those comps things because all in all for Q3 it's almost neutral because again US was having a very high comp.

So there are definitely some improvements in the underlying trend that we were expecting. So let's start by our two must-win markets, travel retail and India. So travel retail, we are back to business, I'm just saying, in the China DT3 with the with the Green Mater, which is obviously materializing in a quite dynamic top-line growth. And the other geographies are as well in very good momentum.

India, acceleration in India, which was as well expected, both because the change in the marginal policy impact is easing. and secondly, we have an acceleration of our portfolio, both imported one and local one, which is, as you know, exactly the reason why as well we were quite happy to share interior business so that we can really focus on accelerating those, I would say, two beautiful legs of our portfolio in India And exclamation is a strong innovation. Still early days, but we are quite happy with the dynamic there. And it's not the only regions we have things that are improving.

So maybe let's stay in Asia for a while, and Korea is improving. And so this is good news. Q3 is back to growth. Japan is still growing quite strongly. If I move now to maybe Africa, so Africa, I would say, except the Middle East conflict, we have a strong momentum, which is quite in line with the H1 performance.

In America, Brazil, back to growth, this was as well expected, but the recovery as well as the electoral crisis, and Canada is in a good momentum, as you know. And when it comes to Europe I would say so I put aside Spain because of the Easter impact But UK is back to growth And we have as well a continued good momentum in many other markets in Europe such as Ireland, Nordic, and Eastern Europe.

Okay. Thank you very much. You're welcome.

So maybe I'll start by your second question. I mean, let's be very direct. We have confirmed the intention to maintain the dividend in February, and we are announcing the payment of the dividend installment, the first installment of dividend in July as usual. So I think it's quite consistent in terms of my section, which is no change. Your first question in terms of route to market.

So you're absolutely right. and by the way, the road to market in many countries but starting with the US is obviously a key element to make sure that we have a very strong partnership with our wholesalers to really focus on excellence in execution so a new road to market relationship I would say has been put in place over last summer and there were as well some additional changes very recently with the sales of the R&DC business to various in 10 states. So our team have been working hand-in-hand with the wholesalers to really make sure that this evolution of our distributor ecosystem, I would say, is happening in a very smooth and focused on excellence in execution way on both front for our teams and for the wholesalers.

And that's exactly what's happening right now, even with the recent evolution. So that obviously we can limit very significantly any type of disruption that could happen.

Thank you.

So let's start with your first question. So, I mean, your assumptions are basically right. March has been almost zero for these affected areas for obvious reasons. And obviously, same thing for the duty-free business with everything that happened in terms of airspace closure and so on. So this is perfectly what you were assuming. This started, as you know, very early March. So the month of March has been impacted by that. no significant negative impact in Turkey you are referring to Turkey no this is not something that we are facing as we speak and your question about supply disruption so it's true that there is some pressure on that some let's say potential threat and our teams are extremely engaged to make sure that they can get the right supplies for the weeks to come.

So I would say we are very closely monitoring that as we speak. For the U. S. , a question on trade versus upgrade. So yes, the on trade is a bit better. What I think is very positive about it is that, as you know, we have a kind of overexposure to the on trade. in the U. S. when you think about our portfolio.

We've been as well very much accelerating the activation in the on-trade recently for, I would say, a very good reason because our brands can really, I would say, showcase and recruit consumers in the on-trade, and there was a need to reinforce that a bit, and it showed as well in terms of consumer behaviors and willingness to socialize and to celebrate. the fact that the on-trade is quite dynamic, that this, I would say, consumer need is there and remains quite powerful.

No significant difference, I would say, in terms of gap or gap to the market in the on-trade versus the off-trade. But again, you can expect us to be within acceleration mode in terms of activation in the on-trade.

Got it. Thank you.

Thank you, Trevor. Your first question, I would say I don't think there's right now significant or tangible impact in terms of consumer confidence because of the conflict. Obviously, I don't think it's helping anyone in terms of optimism, but let's not be extrapolating extrapolating of what we are not facing today.

And the impact of the conflict for us is really what I was describing before, which is obviously affected areas and some limited impact outside those affected areas in terms of probably limited supply disruptions and probably as well caution in the travel, in the willingness to travel. but nothing more than that as we speak when it comes to Q4 to be fair when you look at the modest change we are bringing in terms of outlook this is more flying to a kind of modest decline in Q4 due to the Middle East conflict as you mentioned and I think I was as well alluding to that Q4 in China is expected to be better than Q3, again, because it's a low season for Cognac, and we expect improving sales momentum on our premium brands to drive that wolf in Q4.

In the other geography, I think it's probably a continuation of the improving trends that we are delivering in Q3 and positive momentum for the markets that are already in a good place in this one. When it comes to the U. S. , again, the full year net sales is very likely to be much worse than the underlying trends because of the inventory adjustments and the high cost last year linked to the tariff uncertainty.

Thank you very much, Ellen. Thank you, Trevor, and thank you all.

We will now end the call. Have a great rest of the day. Thank you.