Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Davide Campari-Milano NV (DVDCF, Financial) reported a 2.1% organic net sales growth for the first nine months of 2024, driven by global priority brands, particularly in the Americas and EMEA.
- The company is implementing a transformational reorganization by creating four 'houses of brands' to enhance growth and efficiency, focusing on aperitifs, cognac, champagne, tequila, whiskeys, and rum.
- Espolon tequila showed strong performance, with a 18% growth in the first nine months, outperforming the tequila category in key markets.
- Aperol continues to perform well, with strong growth in the U.S., Canada, and other markets, despite challenges in Italy and Germany due to cyclical factors.
- The company is targeting a 200 basis point reduction in SG&A as a percentage of net sales over the next three years, aiming to improve cost efficiency and profitability.
Negative Points
- Davide Campari-Milano NV (DVDCF) faced a challenging macroeconomic environment, with poor weather conditions and reduced consumer confidence impacting sales, particularly in the third quarter.
- The company's EBIT margin declined by 140 basis points to 21.9% due to lower absorption of fixed costs and a challenging sales mix.
- The U.S. market experienced destocking and muted consumption, affecting sales performance, particularly for SKYY vodka and Wild Turkey.
- The Jamaican rum portfolio was impacted by a hurricane, leading to supply shortages and affecting both local and international markets.
- The company anticipates continued macroeconomic headwinds and expects only low single-digit organic sales growth for the full year 2024.
Q & A Highlights
Q: What were the main factors that derailed the quarter's performance compared to the optimistic outlook in July?
A: The quarter was impacted by several unexpected factors, including a hurricane in Jamaica, poor weather conditions in September affecting aperitifs, and a significant drop in consumer confidence. Additionally, destocking in Italy was unexpected, particularly at the retail level, which negatively impacted shipment performance. These factors are considered cyclical and nonrecurring, and the company remains confident in returning to its original growth trajectory.
Q: Regarding the medium-term outlook, how much of the expected SG&A savings will be reinvested in A&P, and is the historic level of 17-18% of sales for A&P sufficient for growth ambitions?
A: The company believes that the 17% level of A&P as a percentage of sales is sufficient, given the opportunities to increase the impact on consumers through more efficient spending. The focus is on achieving a bigger impact with the same budget, leveraging activity-based budgeting and measuring asset utilization.
Q: Can you provide an update on the CEO search process and the criteria for the new appointment?
A: The search for a new CEO is progressing well, with an appointment expected in a relatively short period. The company is considering both internal and external candidates, with no requirement for the candidate to be Italian-speaking. The focus is on finding someone with an international mindset, given Campari's global presence.
Q: What is the expectation for organic sales in Q4, and how does this relate to the mid- to high single-digit growth target for 2025?
A: Q4 is expected to be positive, although not significantly so, due to a tough comparison base. The company anticipates a gradual improvement in market conditions, with a return to mid- to high single-digit growth more likely in 2026. The focus remains on outperforming key brand-market combinations and maintaining pricing discipline.
Q: What percentage of sales is considered non-core and potentially subject to disposal?
A: The company is not targeting a specific percentage of sales for disposal but is focused on reducing complexity by divesting brands that create organizational complexity and offer limited profits. The focus is on streamlining the portfolio rather than achieving a specific revenue reduction.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
