Mixer maker Fever-Tree says soaring price of glass will hit profits
The soft drinks company Fever-Tree has warned that the soaring cost of glass for its bottles amid shortages, plus higher transport fees, mean its profits will be almost a third lower than hoped.
The London-based tonic and mixer maker said it was experiencing an “exceptionally challenging environment” with glass prices rising by more than 10%.
Fever-Tree added that glass availability was also “severely restricted”, which was limiting “the opportunity to deliver upside to revenue despite strong demand”.
Meanwhile, a shortage of workers in the US had forced it to make and ship more drinks from the UK amid rising freight costs and holdups at ports.
The company continues to expect to achieve sales of up to £365m for the full year but profit margins would be lower, resulting in underlying profits of no more than £45m for the year to December from up to £66m previously expected.
Tim Warrillow, the chief executive of the drinks maker, 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.
“While we are seeing positive topline 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 full-year margins.”
Shares in Fever-Tree fell by more than a quarter on Friday following the announcement. The fall came despite it announcing a 14% rise in sales to £161m in the six months to 30 June.
In the UK, sales rose by 6% as a 73% increase in sales in pubs, bars and cafes resulting from the end of Covid restrictions was offset by a 21% fall in retail sales.
Emma Letheren, an analyst at Royal Bank of Canada, said: “While the production delays are Fever-Tree specific, the glass and logistic pressures are industry-wide. As we have been aware of them for many months, we are somewhat surprised that they have necessitated such a big guidance cut.
“We take some small comfort from the maintenance of revenue guidance but, given the extent of the profit warning, this poses big questions over both the brand’s pricing power and longterm profit potential.”
However, the British Glass trade body disputed Fever-Tree’s claims about shortages, insisting there was “more than enough glass to meet demand” in the UK, despite rising costs caused by higher energy prices amid the war in Ukraine.
Dave Dalton, the chief executive of British Glass, said: “British Glass has no concern over the bottle supply in the UK. This has been confirmed by our members and does not support the stories which suggest a threat of shortage. It is the case that there is a high demand for bottles across Europe, which could lead to a knock-on effect, but it doesn’t appear that there will be a shortage of bottles produced in the UK based on current demand.”
Fever-Tree’s difficulties come after a string of profit warnings and cost-cutting drives from consumer goods companies, including Unilever, that have been hit by rising costs.
Food and drinks brands are also wrestling with supermarkets over who takes the profit hit for rising costs, with Tesco recently involved in public spats with the ketchup maker Heinz and Mars, which owns the Whiskas and Pedigree pet food brands.