Tonic maker on the rocks as shares slide
SHARES in the mixer maker Fever-Tree slumped dramatically as it warned of lower profits after its costs soared.
The company, best known for its upmarket tonic water, said demand remained strong but ‘ severely restricted’ availability and the cost of glass for bottles were eating away at its bottom line.
It has also been hit by labour shortages in the US, meaning it had to ship more goods from factories in the UK at a time when freight rates have climbed by as much as 50pc since the start of the year.
Fever-Tree said it was sticking to guidance that it would notch up sales of £355m to £365m this year but that the ‘exceptionally challenging’ environment would hurt profits.
It is now forecasting annual earnings of £37.5m to £45m, sharply down on an earlier forecast of £63m to £66m. However, it said it was confident that a number of the big cost increases it was facing would prove ‘transitory’.
Shares plunged 27.7pc, or 332.5p, to 886.5p.
Co-founder and chief executive Tim Warrillow stepped in to buy just over £1m worth of the stock at a price of 871p and chairman Bill Ronald acquired just under £100,000 of the shares at a similar price in an apparent vote of confidence in the firm’s prospects.
The shares are down by more than 66pc so far this year. They first floated at 134p in 2014 and peaked at a heady 4021p in 2018.
The latest trading update showed sales up by 14pc to £160.9m for the first six months of 2022 compared to the same period last year.
They were up by 6pc to £53.5m in the UK, where the market was readjusting after pandemic restrictions eased, with the ‘ontrade’ in licensed premises, such as pubs and restaurants, up by 73pc while the ‘off-trade’, sold in shops for drinking at home, was down 21pc.
In the US, sales were up 11pc and in Europe by 27pc.
Warrillow said: ‘Fever-Tree has delivered a solid revenue performance in the first half of 2022, with a particularly strong performance in Europe and demand continuing to build in the US.
‘Whilst we are seeing positive top line performance and expect to deliver good revenue growth for the full year, the challenging logistical and cost headwinds we highlighted previously have significantly worsened in recent months and we now expect them to notably impact our fullyear margins.’
Brokers at Peel Hunt halved their target price on the stock from 1600p to 800p.
They said they did not believe the brand has the ‘pricing power’ – the ability to pass on costs without damaging sales – it needs to recover in the short-term.
The UK off-trade sales fall was ‘concerning’, they added, given the ‘ more severe competitive pressures’ in trying to grow the on-trade.
A note from RBC said the update ‘poses big questions over the brand’s pricing power and long-term profit potential’.