JDE Peet's Earnings: Cautious Fiscal 2024 Guidance and Russian Business Uncertainty Weighing on Shares

JDE Peet's reported second-half fiscal 2023 results with 4.3% group organic growth, above the company-compiled consensus of 3.7%. Within this, organic growth in Europe, which is the group's most profitable segment, was up 7.9% (volume/mix of 5.2% and 2.6% in price), continuing its expected improvement from a disappointing first half. LARMEA and Peet's performed well, with organic sales growth up 4.7% and 3.9%, respectively, and positive volumes. On the other hand, APAC organic sales growth of 2.1% was driven by price (up 4.9%), with volume declines dragging performance. Adjusted EBIT was down to EUR 1.128 billion from EUR 1.227 billion last year, primarily due to Latin America, Russia, Middle East, Eastern Europe and Africa, or LARMEA's, underperformance amid a high base of comparison, transactional foreign exchange impact, and the brand transition in Russia. Management introduced guidance for fiscal 2024 with organic sales growth at the lower end of the medium-term range of 3%-5% (versus 3.6% in our model), mid-single-digit organic adjusted EBIT growth, excluding Russia's performance, versus 5% growth in our model and free cash flow above the level of fiscal 2023 (EUR 523 million in fiscal 2022). We expect to trim our EUR 30.5 per share fair value estimate for JDE Peet's, largely reflecting cautious organic growth and free cash flow guidance for fiscal 2024 as well as ongoing uncertainty on Russian business.