Industry economics showing promise for 2021

The global economy is now expected to grow by 6% this year after developed nations ramped up the Covid-19 vaccination drive, according to the International Monetary Fund.

It marks the second time in three months that the IMF has upgraded its global economic growth forecast. The positive sentiment has pushed Wall Street to record highs, and the MSCI World Index has also scaled new heights this month. 

We are currently in the thick of corporate earnings season, and the picture for the drinks industry looks healthy. LVMH led the charge by reporting 36% year-on-year sales growth within its Moët Hennessy division for the first three months of 2021.

That was driven by a vast improvement in trading conditions in China, which was badly hit by the outbreak of Covid-19 during Q1 2020. However, Moët Hennessy’s sales were also up 17% on the first quarter of 2019. 

The firm reported 22% year-on-year growth in Champagne volumes, suggesting consumers have a lot more to celebrate in 2021, while cognac sales rose by 28%. LVMH described it as “a good start to the year”.

Pernod Ricard chief executive Alexandre Ricard was upbeat as he hailed the company’s Q3 performance. Organic sales increased 19% year on year to reach €1.95 billion in the three months to the end of March. It means Pernod Ricard’s sales are up 1.7% for the first nine months of its financial year, despite challenging trading conditions.

“Our Q3 was excellent, marking a return to organic sales growth for 9M FY21,” said Ricard. “This confirms the strength of our business, with strong dynamism of our domestic must-win markets and good resilience throughout.

“In a still uncertain and volatile global context, with the current information available on the pandemic, we will continue to implement our strategy while actively managing resources, in particular strongly reinvesting where efficient.”

He expects sales growth to accelerate in Q4 and forecasts organic profit growth of around 10% for the full financial year. Pernod Ricard announced that an interim dividend of €1.33 per share would be paid in July. The firm’s share price is now testing the record highs seen in 2019. Diageo’s share price also received a significant boost on the back of the Pernod Ricard results, with investors anticipating a strong year for the drinks industry.

Elsewhere, Rémy Cointreau reported year-on-year sales growth of 15.1% for the first three months of the year. That pushed the company into overall organic sales growth of 1.8% for the full financial year to the end of March.

China led the recovery with sales up 18.2% in the last three months. Annual sales in the Americas were up 18.6%, driven by a strong performance in the US. 

President Joe Biden’s fiscal stimulus package has galvanised the US economy and fears of inflation have not yet come to fruition. Goldman Sachs expects the US economy to grow by 7.2% this year, and it also forecasts 7.8% growth in the UK economy. South Korea has just reported that seasonally adjusted GDP increased 1.6% in the first three months of the year, while China’s output shot up 18.3% year on year in the first three months, the fastest rate since records began in the early 1990s. 

Within the beer industry, Heineken outperformed expectations in the first quarter as a revival in Asia and Africa helped offset a 9.7% decline in Europe. Net profit for the world’s second largest brewer was €168 million, up from €94 million last year.