ii view: Fevertree shares fall amid cost fears

A sales recovery from pandemic disruption is unfolding with the US a bright light. We assess prospects.  

Full-year trading update to 31 December

• Total revenue up 23% to £311 million 

Guidance:

• Expects the profit margin to remain flat during 2022
• Expects adjusted profit (EBITDA) of between £69 million and £72 million

Chief executive Tim Warrillow said:

“The Group continues to deliver impressive growth in every one of our key markets, however, I am of course mindful that short-term logistics challenges and cost pressures remain, along with On-Trade restrictions, albeit at a much lower level than this time last year. 

“Despite this, Fever-Tree's strong growth and track record against the competition, alongside supportive global trends, gives us confidence in our ability to capitalise on the substantial global opportunity."

ii round-up:

Premium soft drinks maker Fevertree (LSE:FEVR) today warned of significant cost headwinds during the full year 2022 as it forecast adjusted profit of between £69 million and £72 million. 

That’s ahead of the heavily pandemic impacted 2020 outcome of £57 million, but still down on the pre-Covid profit of £77 million made in 2019. 

Fevertree shares fell by more than 7% in UK trading, leaving them down by around a fifth since the start of the year. Shares for drinks rivals, Diageo (LSE:DGE) and Britvic (LSE:BVIC), also offering trading updates on the same day, are down by 8% and 5% respectively year-to-date. 

Fevertree expects sales for the year to end of December 2022 to come in at between £355 million and £365 million, aided by an ongoing recovery from the pandemic at its on-trade or bar and restaurant customers.

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Sales of £311 million for the year just finished was up 23% on the 2020 outcome when many bars and restaurants were closed for weeks at a time. 

US sales over 2021 rose by a third to £77.9 million, with both its tonic and ginger beer products outselling rival brands at retail outlets. The board underscored the achievement as a clear indication of the brand's continued international success.

Sales in Europe surpassed management expectations, climbing by just over a third to £88.2 million. UK sales hit £118 million during 2021, up 15% year-over-year and pushed higher by a 59% jump in bar and restaurant demand as outlets reopened for business. 

Full-year results to the end of December 2021 are scheduled for 16 March. 

ii view:

Launched in 2005, Fevertree makes and sells premium carbonated mixers for alcoholic spirits to over 75 countries. It supplies a range of soft drink mixers to hotels, restaurants, bars and cafes or on-trade outlets as well as supermarkets and off-licenses or off-trade. Its drinks include tonics, ginger ales, ginger beer, cola, sodas and lemonades.

For investors, cost pressures and logistics challenges cannot be ignored. Shortages of HGV drivers and higher freight charges for goods to the US persist for industry more broadly. Growing overseas sales potentially brings currency movement headwinds, while both pandemic related and economic outlook uncertainty remain.  

More favourably, demand for spirits has been growing in recent years ahead of beer and wine, according to Fevertree itself. Expansion in markets such as the US is ongoing, while the dividend payment, although not greatly enticing at below 1%, has been increased consecutively over the last six years. In all, and while difficulties clearly remain, room for long-term optimism persists.

Positives: 

• Diversified geographical sales
• Progressive dividend payment 

Negatives:

• Battling cost headwinds
• Continued Covid and economic outlook uncertainty

The average rating of stock market analysts:

Strong hold