Remy Cointreau (RCOP.PA) has found a new growth market for its premium Cognac — China. However, recent pro-austerity policies are having a chilling impact on conspicuous consumption and the gifting of luxury items. Easily gift-wrapped premium French spirits appear to be among the casualties. We swirl the snifter and contemplate the results.
The financial ramifications of this decline in demand may be observed in our StarMine model scores below –with many falling into the “bearish” category.
Source: Eikon/StarMine
Sobering Financials
Looking at the September interim balance sheet, you’ll find that inventory levels have risen 9.1% from the same period in 2012. Luckily, Cognac gets better with age. But that doesn’t help this year’s revenue numbers. Fewer sources of sustainable earnings results in a StarMine Earnings Quality rank among the lowest 18% compared to all companies in the Developed Europe region, partially shown in the asset accruals data below.
Source: Eikon/StarMine, Reuters Fundamentals
Driven to drink?
We’re not the first to document lower earnings and higher inventories. Sellside analysts have also been slashing their revenue, EBITDA and earnings estimates for both this year (ended March) and next year. The average recommendation has also been lowered. Combined, this results in a bearish StarMine Analyst Revisions Model rank of just 2, out of a possible 100 – also among the lowest in the region.
Source: Eikon/StarMine, I/B/E/S estimates
Don’t roll out the barrel
The decline in the consensus estimate for this year over the last 90 days can be seen in the chart below (blue line). The StarMine SmartEstimate (orange line) at 1.81 euros is currently 3.3% below the consensus of 1.87 euros. One 5-Star rated analyst has an estimate that’s much lower still, at 1.66 euros.
The percentage difference between the SmartEstimate and consensus is referred to as the Predicted Surprise. At this magnitude, the PS% on average is predictive of the direction of future earnings surprises with a hit rate of roughly 70%. As you can see, it has also been predictive of the direction of future revisions in the consensus – leading it downward throughout this 90-day chart display. It achieves this accuracy by placing more weight on the more recent revisions and on those analysts whose forecasts for Remy Cointreau have been most accurate in the past.
Source: Eikon/StarMine, I/B/E/S estimates
An imminent earnings miss?
On the morning of June 5, Remy Cointreau will report its consolidated preliminary financial results for the fiscal year ended March 31, 2014. With this reporting date just around the corner, it doesn’t look like the consensus estimate will catch the SmartEstimate in time.
If its historical accuracy holds true this time, a disappointing cocktail of financial results may shortly be served up by Remy Cointreau. And it will come as no surprise if watery China consumption is the major contributor to those weaker results.
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