Morning Note: Market news and a negative update from Remy Cointreau.

Market News

The yield on the 10-year US Treasury note eased to 4.85%, after failing to maintain the psychological threshold of 5% from earlier in the week as investors were digesting recent data and geopolitical tensions remained high. US economic growth US expanded to 4.9% in the third quarter driven by strong consumer spending. The pace of growth – the fastest for two years – was ahead of the market forecast of 4.3%. The report comes ahead of next week’s Federal Reserve interest rate decision. Yesterday, the European Central Bank held interest rates at 4%.

US equity markets moved lower – S&P 500 (-1.2%); Nasdaq (-1.8%) – although Amazon rose 5% after hours following the release of strong Q3 sales. The S&P futures are currently pointing to a 0.6% rise at the open this afternoon as traders await American economic data including the Federal Reserve’s preferred gauge of underlying price pressures. Core PCE is expected to have increased by 0.3% in September.

This morning Asia, markets traded higher: Nikkei 225 (+1.3%); Hang Seng (+2.3%); Shanghai Composite (+1.2%). The FTSE 100 is currently little changed at 7,353. Sterling buys $1.2121 and €1.1477.

The US conducted strikes in eastern Syria on two facilities it believes were used by Iran’s Islamic Revolutionary Guard Corps and affiliated groups. Lloyd Austin said Joe Biden ordered the “precision self-defence” strikes following attacks since 17 October that resulted in the death of one US contractor and injured 21 American personnel. Both the oil price ($88.50 a barrel) and gold ($1,988 an ounce) moved higher, The yellow metal is set to end the week with marginal gains, as geopolitical uncertainties in the Middle East provided support to the metal.

Codelco, the world’s largest copper producer, announced a 65% fall in profit on the back of higher production costs and project delays. The struggles at the Chilean state-run company are a further sign of the supply issues facing many commodities.

Source: Bloomberg

Company News

Rémy Cointreau has this morning released a muted revenue update which highlights a slower than expected recovery in the US. The company has lowered its full-year guidance and in response the shares have been marked down by 8% in early trading. The share price of industry peer Diageo is little changed given that the company issued a reassuring update at the end of September.

Rémy Cointreau is a global alcoholic beverages business, with iconic brands including Rémy Martin, Cointreau, Greek spirit Metaxa, Mount Gay rum, and The Botanist gin. The group’s strategy is to move upmarket through portfolio streamlining at the expense of low-end products, adaptation of its distribution network, and expiration of distribution agreements with partner brands. The target is to become the world leader in ‘exceptional spirits’ – described as retailing at more than $50. The business plays well to the increased global demand for premium and luxury products, the rise of mixology and at-home consumption, and strong growth in online sales. The group is targeting a gross margin of 72% and a current operating margin of 33% by 2030.

In the three months to 30 September – the second quarter of the group’s financial year to 31 March 2024 – reported sales fell by 17.1% to €379m, including a negative currency impact of 6.3%. In organic terms, sales fell by 10.8%. Sales are still 25.6% above the same quarter in 2019 (i.e., pre-pandemic).

The result was an improvement on the previous quarter (-35.0% organic) and sales are down 22.2% for the group’s first half, driven by negative price/mix of 3.3% and a 18.9% decline in volume.

By product type, sales of Cognac were down 17.8% in the latest quarter on an organic basis to €261m. The business suffered a steep decline in North America where the group is targetting a reduction in inventories and facing a normalisation of consumption alongside a fiercely promotional environment. In addition, the group’s decision to maintain its value-driven strategy through a firm pricing policy contributed to increased short-term pressure on volume. Elsewhere, within Asia Pacific, the China unit saw solid growth in sales despite a slower than expected post-covid recovery. In the rest of Asia, trends were solid, while business was strong in the EMEA region.

The Liqueurs & Spirits division saw a marked acceleration in the quarter, up 12.1% to €112m, with the Americas enjoying a steep rise in sales. The group enjoyed an ongoing recovery in the Travel Retail segment.

Looking forward, the sales rebound in the US initially expected in the current quarter has now been delayed to fiscal year 2024/25 (i.e., post March 2024). In Asia Pacific, the pace of growth will be lower due to slower pace of post-covid recovery in China. In response, the group has lowered its full-year guidance – it now expects organic sales to fall by 15%-20%, having previously forecast stable sales. A ‘contained organic decrease’ is expected in the operating margin thanks to deployment of a major cost-cutting plan, including a reduction in marketing and communications. The previous guidance was for a stable margin.

The group has reiterated its long-term targets.

Source: Bloomberg