Pernod Ricard predicts first-quarter sales fall as Chinese and US woes continue

Pernod Ricard reported a 3% organic sales decline for FY2025, meeting forecasts with sales at €10.96 billion, but warned of lower Q1 FY2026 revenues. This near-term weakness stems from persistent distributor inventory adjustments and tariff uncertainty in the U.S. (sales down 6%), alongside significantly weak consumer demand and anti-dumping investigation impacts in China (sales down 21%). Despite these headwinds, Pernod reiterated its 3-6% annual organic sales growth guidance for FY2027-2029, anticipating improving trends in the latter half of FY2026.

Analysis

Pernod Ricard's full-year 2025 results met consensus forecasts with a 3% organic sales decline to €10.96 billion, but the key takeaway is the pessimistic short-term outlook. The company has explicitly guided for lower first-quarter 2026 sales, citing persistent headwinds in its two largest markets. In the United States, sales fell 6% due to ongoing distributor inventory adjustments linked to tariff uncertainty, a headwind expected to continue into the new fiscal year. The situation in China is more severe, with annual sales plummeting 21% amid weak consumer demand and the overhang of an anti-dumping investigation, prompting a forecast for a 'sharp decline' in Q1 2026. While profit from recurring operations saw a smaller organic decline of 0.8%, suggesting some cost management is in effect, the near-term revenue pressures are significant. This challenging immediate outlook contrasts sharply with management's reiterated mid-term guidance for 3-6% annual organic sales growth for FY2027-2029, indicating a belief that current issues are transitory and that performance will improve materially in the second half of FY2026.

Key Decisions for Investors

• Investors should anticipate continued share price pressure in the near term, as the explicit warning for a weak Q1 FY2026, driven by sharp declines in China and ongoing US inventory issues, will likely lead to downward revisions of consensus earnings estimates.
• The primary focus should be on monitoring for catalysts that could signal a second-half recovery, specifically the conclusion of the anti-dumping investigation in China and any stabilization in US distributor orders.
• For long-term holders, the key question is whether the current headwinds are cyclical or structural; the reiterated FY2027-2029 growth targets present a potential value case, but this is contingent on management successfully navigating the significant execution risks present in the first half of FY2026.