Rising costs force Campari to put margin target on ice

By Francesca Landini

MILAN (Reuters) - Italian drinks group Campari expects to feel the impact of rising costs in the first half of this year before planned price rises relieve some of the pressure, delaying its plans to boost profit margins.

The darkening outlook for prices and profitability hit Campari's shares, which closed down nearly 10% to their lowest in more than one year.

Campari CEO Bob Kunze-Concewitz said price adjustments will start in April and vary widely from market to market and from brand to brand.

"We normally take price increases from the second quarter onwards and we will stick to that," he told Reuters in a phone interview.

The prices of the group's aperitif brands and selected brown spirits may see the biggest adjustments, but, despite this move, targeted gains on profitability will be delayed by one year, the group said on Wednesday.

The maker of Aperol and Campari bitters had forecast gross margin would improve by around 70 basis points this year but warned that higher costs meant this would not materialise and the operating margin was likely to be flat in 2022.

Packaging is responsible for around half of the cost increases, Chief Financial Officer Paolo Marchesini said, citing glass for the beverage bottles as a number one cause. Agave, a key ingredient of tequila, and sugar are other sources of inflation.

"We expect the first two quarters of this year to be tough, but then things will improve... we believe that cost inflation is temporary," Marchesini told analysts.

"ROARING TWENTIES"

Campari reported a nearly 26% rise in like-for-like sales to 2.17 billion euros in 2021 helped by increased online purchases of spirits and cocktail consumption at home.

Adjusted operating profit, or earnings before interest and taxes (EBIT), came in at 435 million euros, up 42% on a like-for-like basis.

Kunze-Concewitz told Reuters that the pandemic had probably changed consumer habits permanently.

"There is what I call 'revenge conviviality', like the Roaring Twenties... when people want to make the most of their free time, celebrate with friends at home or going out when they are allowed to go out," he said referring to a century ago.

He also said that lockdown forced people to learn how to make their own cocktails after ordering their drinks online.

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"I am amazed at how competitive people can get in doing cocktails," he said.

The group's exposure to Russia and Ukraine was just 3% of total sales, but geo-political tensions could have negative impact on consumers' sentiment and the economy, he added.