French spirits maker Pernod Ricard, which is being targeted by activist investor Elliott, has raised its profit outlook on bets that cost savings and Chinese demand will offset a slowdown in quarterly sales growth.
Pernod, the world's second-largest spirits group after Diageo, is hoping cost cuts, expansion into profitable premium brands such as Malfy gin and sustained demand for Martell cognac in China will underpin sales growth and profits.
"We upgraded our ambition for the year. This truly reflects the efficiency of our strategy plan," CEO Alexandre Ricard told Reuters.
Pernod, which also makes Mumm champagne, Jameson whiskey and Absolut vodka, is now targeting a rise of around 8% in profit from recurring operations for its 2019 financial year, at the top of 6% to 8% growth guidance given in February.
The Shadow Of Elliott
Pernod is under pressure from US hedge fund Elliott to improve profit margins and corporate governance.
In February, Pernod vowed to lift its margins and shareholder returns under a three-year strategic plan that Elliott described as a first small step.
Ricard said Pernod was in regular contact with Elliott.
"There is a regular dialogue between the teams, but we do not see them more than other shareholders. My ambition remains to deliver on our strategic plan, that's my motto," he said.
Pernod Ricard has announced plans for €100 million in cost savings to drive this margin expansion. It reiterated last week that it expects to deliver €200 million in savings by June, a year ahead of initial target.
Pernod has said its goal for the 2019-2021 period is to lift group operating profit margins by 50-60 basis points per year, provided it could deliver annual organic sales growth of 4% to 7%.
Given its organic sales growth of 6.3% in the first nine months of the current financial year, Pernod Ricard said it is looking for a 50 basis points improvement in its operating profit margin for the full year.
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