Pernod Ricard reported an 8% decline in organic net sales for the first quarter of fiscal 2026, below consensus. Despite this, shares rose 2% on Oct. 16. Sales in key markets like the US and China saw significant declines due to various factors, while other regions saw growth. Management expects improving trends in the second half of the year and plans to defend its operating margin.

The company is focusing on cash generation, portfolio streamlining, and cost savings during the spirits’ cyclical downturn. Asset disposals are expected to improve margins. Despite lowering the fair value estimate to EUR 112, Morningstar views shares as undervalued. Concerns remain about demand recovery in key markets, but headwinds are seen as cyclical rather than structural.

Morningstar expects Pernod to reach its medium-term organic net sales growth target of 3% to 6%. A cost efficiency plan involving EUR 1 billion in savings and a positive mix effect is expected to drive operating margin expansion. The company’s broad portfolio and geographic diversification are seen as strengths that will enable it to withstand industry shifts in the long term.

Read more at Morningstar: Soft Start to the Year, but Encouraging Pockets of Growth; Lowering Valuation