Campari cuts profit margin forecast on expansion costs

By Agnieszka Flak and Valentina Za

MILAN (Reuters) - Italian drinks group Campari cut its full-year profit margin forecast on Tuesday, blaming the cost of its expansion plans in the United States and Spain and overshadowing a pick up in underlying sales in the second quarter.

The maker of the eponymous bitter red aperitif said on Tuesday it was now aiming to achieve a flat gross profit margin this year.

"We had initially indicated an increase of 70 basis points in the gross margin as a percentage of sales, which we won't be able to achieve," Chief Financial Officer Paolo Marchesini told analysts, blaming cost overlaps linked to new production and distribution initiatives in the United States and Spain.

Full-year operating profit at the maker of the bright orange Aperol aperitif, previously expected to be flat as a share of sales, is now seen down by 70 basis points compared with the 2013 level.

Campari earlier reported flat first-half pretax profit as a recovery in underlying sales in April-June, mainly in Russia, Jamaica and Australia, made up for weaker shipments at the start of the year.

After rising as much as 4.3 percent in the wake of the results, Campari shares had retreated to trade down 1 percent at 5.775 euros by 15:35 GMT, compared with a 1.3 percent weaker Milan blue-chip index <.FTMIB>.

"The organic sales growth was strong in the second quarter and beat consensus, and the Italy recovery appears to be continuing, which is encouraging," a Milan-based analyst said, but asked not to be named.

Comparable sales in the first half rose 3.8 percent before currency swings. Sales were down 1.8 percent to 686 million euros (685.92 million pounds) including the effect of exchange rates as well as of acquisitions or new distribution agreements.

APERITIFS

Campari said underlying sales had recovered in most key markets, with growth driven by its aperitifs business, after first-quarter earnings were hit by a slowdown in Russia, shipment phasing in the United States and a late Easter which pushed deliveries in Europe into the second quarter.

"We are confident that the overall positive organic sales trend will consolidate in the second half year thanks to the normalisation of shipment trends across key markets," Chief Executive Bob Kunze-Concewitz said in a statement.

Sales in Italy, which make up just under a third of the group's shipments, were up 8.7 percent in the six months, but remained weak in the United States, another key market.

"Italy performed strongly in the first half, as did Latin America, driven by Brazil and Argentina," Kunze-Concewitz said. "Importantly, a strong recovery in the second quarter was also achieved in Russia, Jamaica and Australia which helped partly offset weak shipments in other key markets."

Campari said January-June pretax profit was 91 million euros ($122 million) compared with 92 million euros in the same period last year. Net profit was also roughly flat at 57 million euros.

The company's net debt stood at 1.1 billion euros at the end of June, up from 853 million euros at the end of December.

($1 = 0.7481 Euros)

(Additional reporting by Sabina Suzzi and Valentina Za; Editing by Mark Potter)