Domecq profit, shares slide
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April 29, 1999: 9:58 a.m. ET
Stock of world's No. 2 distiller slips over 4% on 8% drop in earnings
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LONDON (CNNfn) - Shares of the world's No.2 distiller, Allied Domecq, slumped in London Thursday after the company said underlying net profit fell 8 percent in the first six months.
The liquor, pub and food retail group's stock slide almost 4.5 percent to 487 pence as the market digested results for the half year ended Feb. 28, which showed net earnings, before a one-time gain of 53 million pounds, slip to 216 million pounds from 235 million pounds a year earlier.
The results came in a the bottom end of expectations, but analysts said the company achieved this only by cutting its marketing spending in the spirits division by some 8 million pounds.
Analysts said there are worrying signs of slowder growth in European spirit sales, which one described as the division's "powerhouse" in recent years.
But of greater concern is the looming prospect of a price war among pub chains. The U.K. market is suffering from massive oversupply as companies have pumped around 5 billion pounds into the sector over the last five years without stimulating any real growth.
Margins in this division, which operates around 3,700 pubs in the U.K., slipped about 2 percent due to special promotions, calculated one analyst, who asked not to be named. "A food retail-type price war in the pub trade is not beyond the realms of possibility," he said. "And that doesn't bode well for Allied, which isn't well positioned."
"Allied is going nowhere," said the analyst, who is highly critical of the management, describing the board as "inept".
Most observers expected Allied to demerge its pub interests, but the analyst said "petty power politics" at board level is preventing senior management from making that decision.
The group has performed poorly since the start of the 1990s, with both share price and earnings growth stagnating, and in its current state, analysts expect little to change.
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Allied Domecq
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