What LVMH results mean for European beverages

WHAT LVMH RESULTS MEAN FOR EUROPEAN BEVERAGES

Shares in Europe's largest luxury group LVMH MC are rising on Wednesday following upbeat results, with overall sales for the quarter ending in March up 3% on an organic basis, matching expectations.

But it wasn't all rosy. LVMH's wine and spirits division, home to Moet & Chandon champagne, reported quarterly organic sales down 12%, below consensus of down 7%. Cognac & Spirits, which is 52% of the overall unit's sales, saw an organic sales decline of 16%.

UBS analysts said that might signal trouble for European spirits.

"Overall, we think the top-line results are a negative read-across for the European Spirits stocks," UBS analyst Sanjeet Aujla said in a note.

For Diageo DGE, which owns a 34% stake in LVMH's drinks division (MH) and accounts for around 10% of earnings, UBS is cautious.

"We note downside risk to H2 associate income from weak Q1 sales and negative FX headwinds," UBS says.

Jefferies analysts are slightly more optimistic for the sector, noting the tone in the results was "more positive" on the U.S. versus China, while the weakness in the cognac category is well understood for Remy RCO.

"Commentary that the US is seeing signs of stabilisation on an underlying basis and that inventories are reasonably low is positive for category turnaround," Jefferies says.

"However, Remy has been firmer on price, and sell-out trends are trailing that of MH."

Jefferies has 'buy' ratings on Remy and Pernod RI, and a 'hold' rating on Diageo.

(Samuel Indyk)

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