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Pernod Plans Buyback After Fastest Growth in Seven Years

Pernod Plans Buyback After Fastest Profit Growth in Seven Years

(Bloomberg) --

Pernod Ricard SA reported its strongest annual earnings growth in seven years, fueled by Chinese demand, and announced a 1 billion-euro ($1.1 billion) share buyback.

After sales in China surged 21%, the company is doubling down in that market by building a $150 million distillery in Sichuan province to produce single malt whisky. The company also announced the $223 million purchase of New York-based Castle Brands to add Jefferson’s bourbon to its portfolio.

The positive results add steam to a distilling industry that’s been an outperformer in the wider consumer-goods sector. The revival of cocktail culture has boosted sales of high-end liquor brands such as Pernod Ricard’s Monkey 47 gin and Martell cognac.

Profit from recurring operations rose 8.7% to 2.58 billion euros in the year through June, edging out analysts’ estimates. However, the company forecast profit growth may slow slightly this year to a rate of 5% to 7%.

The stock rose as much as 4.6% to a record 174.25 euros Thursday.

“We suspect management are being prudent, rather than this being a signal of weaker underlying trends,” wrote Trevor Stirling, an analyst at Sanford C. Bernstein. Last year Pernod Ricard started out with the same forecast, then raised it twice.

Pernod Ricard is under pressure after activist investor Elliott Management Corp. took a stake in the company late last year. The buyback follows rival Diageo Plc’s plan to return as much as 4.5 billion pounds ($5.5 billion) to shareholders.

The French company also raised its dividend so that it’s now paying out 50% of earnings.

“Now that we’ve significantly deleveraged our business to the lowest leverage ratio in at least 15 years, it’s the right time to clarify our strategy with shareholders,” Chief Executive Officer Alexandre Ricard said by phone of the buyback plan. He said the payout ratio has been lower over the past decade because of Pernod Ricard’s acquisition strategy.

The distillery in the Chinese city of Emeishan will be the first built buy a foreign spirits maker in that country and is scheduled to begin production in 2021. Pernod Ricard hired Neri & Hu, renowned Chinese architects, to build the site, which it intends to promote as a tourist destination.

Read more: Trade War or Not, U.S. Companies Follow the Consumer to China

To contact the reporter on this story: Thomas Buckley in London at tbuckley25@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier, John Lauerman

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