26th Jan 2023 15:39
(Alliance News) - For Hargreaves Lansdown's Aarin Chiekrie, Fevertree Drinks PLC's latest trading update was as mixed as the drinks it supplies, with the firm posting an up-tick in total annual revenue amid declining returns from the UK.
The London-based premium drink mixers producer reported revenue of GBP344.3 million in 2022, up 11% from GBP311.1 million a year prior.
UK revenue fell by 1.8% to GBP116.2 million from GBP118.3 million a year ago, while US revenue increased by 23% to GBP95.6 million from GBP77.9 million.
Revenue for Europe grew to GBP101.0 million, up 15% from GBP88.2 million a year ago, while "rest of the world" revenue increased by 18% to GBP31.5 million from GBP26.7 million.
Chiekrie said this was an "impressive" performance but noted that the growth didn't live up to the market's "demanding expectations", as well as its own.
Fevertree, despite the increase in global sales, failed to meet its revenue guidance issued in September of between GBP355 million and GBP365 million.
The firm blamed the revenue disappointment on widespread industrial action in the UK in the lead-up to Christmas, which it said impacted sales in what is traditionally a very strong trading period.
In addition, it said the off-trade mixer category was up against very tough comparators after a very strong sales period during the pandemic.
Going into 2023, Fevertree said high European energy costs will have a significant impact on glass bottle pricing, with the company expecting additional costs of GBP20 million as a result of the increased costs of glass manufacture.
About 80% of Fevertree's products are sold in glass bottles.
Liberum said this put Fevertree in a difficult spot, as glass bottles remains key to the brand's premium positioning.
"With most of the competition still using PET bottles, this places Fevertree at a disadvantage in passing this cost on through pricing... The group is therefore dependent on energy costs to normalise and there are positive signs in this regard, it is not something one can reliably depend upon," it explained.
As a result of these concerns, Liberum moved the stock to hold from buy.
"We have been BUY on the stock on expectations that the company will be able to pass through some of these costs to the end consumer, as well as benefit from various efforts to improve the structural profitability of the business, some of which have already started to kick in like local US bottling. However, the inability to pass these costs on to customers and dependence of a recovery in profitability on energy prices makes us wary of recommending the shares at the moment.
"We do build in a recovery in gross margin in financial 2024 as more of the company's self-help efforts continue to reduce costs and inflation pressure in general easing in distribution and commodity costs, but energy costs and its impact on glass prices remains the key moving factor that could lead to major variation from our and the company's own profitability expectations," it explained.
Fevertree updated its revenue guidance to between GBP390 million and GBP405 million in 2023, representing growth of between 13% and 18%.
It anticipates earnings before interest, taxes, depreciation and amortisation of about GBP39 million, in line with market expectations.
Chief Executive Officer Tim Warrillow said: "Looking ahead to 2023, we remain very confident in delivering strong top line growth, most notably in the US. Whilst the initiatives we are implementing would have driven margin improvement during the year, the energy related cost increases, which are particularly acute across the glass industry, mean we expect to deliver absolute Ebitda in-line with 2022."
Hargreaves Lansdown's Aarin Chiekrie said that cutting costs on things like marketing spend mean that Fevertree is still expected to hit its full-year profit targets. But, with such high expectations already built into its price, Chiekrie said, it's going to be hard for the firm to "sparkle."
Shares in Fevertree Drinks were down 8.1% at 1,027.00 pence on Thursday afternoon in London. Over the past 12-months, the stock is down 56%.
By Heather Rydings, Alliance News senior economics reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
Fevertree