15th Jul 2022 15:48
(Alliance News) - Premium mixers maker Fevertree Drinks PLC on Friday said rising costs and supply chain woes are putting pressure on profit, leading the firm to slash to its full-year guidance.
In the first half of 2022, Fevertree posted revenue of GBP160.9 million, up 14% from GBP141.8 million year-on-year.
Off-trade sales - meaning drinks bought for the home rather than in bars and restaurants - fell 21% in the UK as Fevertree lapped lockdown comparatives. US off-trade sales more than doubled compared to pre-Covid levels, reflecting the brand's significant growth in the territory over the past three years.
However, the company flagged labour shortages in the US, resulting in greater UK production and bringing greater exposure to increasing sea freight rates. In addition, the firm explained that glass availability has become "severely restricted" and industry-wide cost pressures have increased.
"In theory Fevertree should be in a reasonably good position to pass on higher costs. It is a premium brand and, relative to the cost of the accompanying alcohol, you'd think its customers might not worry too much about paying a bit more for their favourite mixer," commented AJ Bell financial analyst Danni Hewson.
"Management's view is that the challenges the business are facing are 'transitory', however investors have heard that same message from central banks over inflation before a rapid change of tune. On that basis they may well take some convincing," Hewson continued.
Fevertree now expects earnings before interest, tax, depreciation and amortisation in a range of GBP37.5 million to GBP45 million for the full-year - down from a prior range of GBP63 million to GBP66 million. In 2021, the company achieved Ebitda of GBP63.0 million.
Fevertree expects a further 400 basis points to 600 basis points of margin dilution, anticipating a gross margin around 33% to 35%, which would be down from the 42.1% posted for 2021.
"Markets have reacted badly to news that costs are significantly higher than expected," commented Matt Britzman, equity analyst at Hargreaves Lansdown.
"Demand for Fevertree's products is clearly there and that comes through in the stable revenue guidance. The challenge from here is getting costs back under control, and that's a hefty challenge," he continued.
Shares were down 26% at 884.90 pence on Friday afternoon in London.
Despite the challenges and sharp drop in its share price, analysts at Liberum said they remain "optimistic" for their outlook on Fevertree. Liberum kept its 'buy' rating but chopped its price target to 1,100 from 2,300p.
"Logistics disruption and inflationary cost pressures continue to hurt and likely to do so for longer than we had expected but the US East Coast bottling plant is gradually ramping up and it is engaging with suppliers on various cost initiatives which will help mitigate the inflationary pressure but maybe more so next year than this one," Liberum explained.
By Heather Rydings; [email protected]
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