Back to top

Analyst Blog

The world’s leading cognac makers, Hennessy, Remy Martin, Martell and Courvoisier, are eyeing their growth potential in newer markets for the 97% of the French spirit, which is exported each year, and take it into the promising lands of Vietnam, Taiwan and Russia.

Hennessy is rated as the biggest cognac player, and while LVMH, the world's largest luxury goods group, owns 66% of its stake, the remaining 34% is owned by the world's top spirits maker Diageo Plc.(DEO - Analyst Report), who boasts the Johnnie Walker whisky and Smirnoff vodka. Courvoisier is the smallest among these four cognac houses and is owned by U.S.-based Fortune Brands Inc. .

Diageo, Plc. the maker of the cognac brand Hennessey, believes in line with the other players and banks upon the potential of the emerging markets. In 2010, China emerged as the second biggest consumer of cognac as China consumed 20 million bottles of Cognac between January and September 2010.

Johnnie Walker outsold the whole cognac industry this year. In May 2011, the world’s biggest distiller tried to win customers with $2,000 worth bottles of its limited-release 1910 edition whisky.

The whisky market in China has developed in a way that is unsustainable for mid-sized players. Meanwhile, Brown-Forman and Bacardi have experienced subsequent volume loss in China. Only Pernod Ricard's Chivas, Regal and Diageo's Johnnie Walker Black, to an extent.

According to an industry magazine, ‘Impact’, cognac consumption in China rose 8.5% to 11.3 million 12-bottle cases in 2010, as actual sales rose 30%, making the industry worth a historic annual high of more than $2.5 billion.

Cashing on higher sales, the cognac industry, based in south-western France, has recovered from the global downturn in 2008 and 2009. The big players of the cognac industry do not want to rely on a single market, and they also believe that a wider spread of exports will help cushion cognac if the hard times return again.

Diageo Plc.’s fiscal 2011 net income from continuing operations grew 16.1% to £2.02 billion ($3.3 billion) from the year-ago period. Earnings per share came in at 76 pence ($1.24 per ADR), compared to the year-ago quarter.

Fortune Brands' adjusted earnings of 71 cents a share for the second quarter of fiscal 2011 missed the Zacks Consensus Estimate of 97 cents and declined 5.1% from the prior-year quarter. Earnings, on a GAAP basis, were 65 cents per share compared with $1.17 per share posted in the year-ago quarter.

While Diageo holds a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating, Fortune Brands holds a Zacks #4 Rank implying a short term ‘Sell’ rating.

Please login to or register to post a comment.