Pernod Ricard is getting better at managing decline before it has found a new engine for growth.
For the second year running, the company introduced its results with almost the same sentence: steering through a transition with agility, discipline and strategic conviction. In FY25 that language covered a 3% organic sales decline. In FY26 it covered 3.9%. Reported sales fell 14.2% to €9.4 billion. Organic profit from recurring operations fell 5.2%. The rest of the world, stripped of the United States and China Mainland, grew 0.5%.
None of this is a surprise if you have watched the year unfold. Q1 fell 7.6%. The first half fell 5.9%. The third quarter flattened at 0.1%. The second half improved to minus 1.3%. What changed at the full year is not the direction. It is that management has now written the United States out of the medium-term growth equation, trimmed the 3-6% ambition toward its lower end, and shown, more clearly than at any point since the post-pandemic boom faded, what a large spirits group looks like when it becomes highly competent at a smaller business.
The competence is real. So is the missing engine.
America leaves the formula
The United States is still Pernod’s largest market, at about 17% of sales. It fell 14% organically. Sell-out was better than the sales line, around minus 7% for the year. The rest was inventory. Jameson and Kahlúa beat their competitive sets. Skrewball and Malibu improved as small formats and Malibu Pink found buyers. Route-to-market was reorganised. None of that alters the larger admission made to investors: the medium-term plan assumes a US market that is not growing over the period.
That is the industry fact hiding inside a familiar press-release phrase, “continued softness amplified by inventory adjustments.” Destocking can be temporary. A planning assumption that America stays flat through FY29 is not. Diageo, reporting days earlier, has described the same market in similar terms. Two groups that spent a decade treating the United States as the premium spirits engine are now treating it as a constraint.
Jameson makes the geographic inversion concrete. Globally the brand was in a low-single-digit decline. Outside the United States it grew at a high-single-digit rate, with double-digit gains in India, Nigeria and China Mainland. The brand that once exported American momentum is now being asked to import momentum from everywhere else.
China Mainland did not reset. It repriced a category.
China Mainland fell 19%, after minus 21% in FY25. Weight in the group is now about 7%. Martell took the brunt. Prestige demand stayed under pressure. Cognac lost share because of channel exposure. The official offset is carefully chosen: premium brands are growing, casual dining is rising, the middle class is still penetrating premium spirits, trade sentiment before Mid-Autumn Festival is “cautiously optimistic.”
Those things can be true at once and still not restore what cognac used to be. For years the category’s pricing power was treated as structural, amplified by gifting, banquet occasions and travel retail. Those same mechanisms now amplify the reverse. Martell grew in South Africa, Nigeria and Asian duty free, which is evidence of a brand that still works where the occasion still exists. It is not evidence that China Mainland has handed the house back its old luxury shield.
Global Travel Retail was supposed to return to growth in FY26 once cognac sales resumed in China Mainland duty free. After minus 13% last year, it finished at minus 3%. Passenger traffic is about 10% above pre-Covid levels. The channel’s problem is no longer footfall. China Mainland duty free put on a pulse around Chinese New Year. That is not the same thing as China Mainland, or the group, recovering through the airport. Travel retail can rebound in places without becoming an amplifier for a market that has not reset.
India can carry volume. It cannot yet carry the old model.
India grew 7%, or 9% excluding Imperial Blue, and is now Pernod’s second-largest market. The volume underneath that growth is the point. Royal Stag is the world’s largest whisky by cases, at around 32 million. Jameson is the country’s leading imported premium spirit. Selling Imperial Blue made the mix immediately more accretive. This is the most convincing growth story the group currently owns.
It is also a different business from the one that used to justify the valuation: high-margin America paired with Chinese prestige. India can add cases at scale. It does not reproduce their profit density.
That is why the listing language changed. At the half year, the chief financial officer said the plan to take net debt to EBITDA below 3 times by FY29 did not assume an India IPO. At the full year, the board was discussing one, with legal steps already taken to keep the option open. Alexandre Ricard called it “not an obvious yes or no.” The change is not a deal. It is an admission that the asset now doing the growth work is also the asset Paris may need to crystallise.
Premiumisation did not die. It stopped paying the bill on its own.
Strategic International Brands fell 4%, the same rate as in FY25. Exclude the United States and China Mainland and they rose 1%. Strategic Local Brands fell 2%. Specialty Brands fell 8%, even as Bumbu grew broadly and Código found buyers in Asia and France. RTDs rose 12%, after 7% last year, led by Canada, Australia and Western Europe.
The more important number sits in the profit bridge. Organic gross margin contracted 221 basis points. Price/mix was negative in a soft pricing environment. Market mix, tariffs and cost inflation all pulled the wrong way. Operating margin still only fell 35 basis points organically, to 25.8%, because advertising was held at 15% of sales, the lower end of the old “around 16%” range, and because structure costs were cut 8%. In FY25, organic margin had still expanded 64 basis points on a declining top line. That trick is over.
This is the consumer story the brands cannot quite say out loud. People have not stopped paying for better drinks. They have stopped paying, reliably, for a higher bottle in the old occasion. Growth is moving toward frequency, convenience, a smaller format, a flavoured entry, a ready-to-drink can, a 0.0 option. Absolut Tabasco, Malibu Pink, travel-retail exclusives of The Glenlivet and Aberlour, and the small-format push in the United States are all responses to that shift. They are the right responses. They are not yet large enough to replace what Jameson in America and Martell in China Mainland used to deliver.
The company became better at cash than at growth
Here the results are strongest, and should be read that way. The €1 billion operational efficiency programme delivered about half its target in FY26 and is now expected to complete by FY28, a year early. Fit for Future simplified the organisation. Structure costs fell twice as fast as in FY25. Strategic investment was held to about €700 million. Free cash flow rose 6% to €1.2 billion. Cash conversion jumped 17 points to 91%. Around 3,600 jobs have gone since FY24. These are not accounting effects. They are operating choices, executed.
The balance sheet did not get lighter just because cash did. Net debt to EBITDA rose from 3.3 times to 3.7 times, even after disposals that have raised about €1.5 billion. The group is a smaller company producing cash more efficiently from a weaker profit base.
FY27 guidance fits the same pattern. Organic sales are expected to be broadly stable. The United States and China Mainland remain difficult, including in the first quarter. Advertising is put back toward 16% of sales. The organic operating margin is to be defended, not expanded as a headline promise. Medium-term growth stays inside the old 3-6% band, now explicitly at the lower end. The range survived. The centre of gravity did not.
What the year changes
The dual-engine era did not end in August. It ended in the numbers across FY25 and the first half of FY26, when America and China Mainland turned down together and the rest of the world proved able to hold a line rather than replace a model. FY26 is the year that model was budgeted for.
Three industry rules look firmer than they did twelve months ago.
First, the contest among global spirits groups is no longer about who captures the next wave of US premiumisation. It is about who can run a clean cash operation in the years before that market is allowed back into the plan. Pernod did that work more convincingly than it grew.
Second, volume maps and profit maps have diverged. India can add cases. So can the places where Jameson and Martell still find an occasion. They change where volume sits. They have not yet restored the margin structure that America and Chinese prestige once provided.
Third, brand investment has become a variable again. Holding A&P at 15% helped defend the year. Putting it back toward 16% is the FY27 pledge. The risk is not that efficiency was the wrong priority. The risk is time. Desirability can be under-fed for a year. It is harder to under-feed across a US recovery that management itself no longer dates before the end of the decade.
Pernod controlled what it could control. Costs came down. Cash conversion rose. The portfolio got narrower and more accretive. The guidance got more honest about America. What it has not yet shown is the next engine that can do what the last one did: grow the group and expand the right to be valued as a growth company at the same time. Until that appears, FY26 will look less like the end of a transition than like the operating manual for a longer one.
