Fevertree downgrades profit outlook on higher glass costs
- Fever-Tree now anticipates making £30m to £36m in core earnings this year
- Soaring gas prices have made glass bottle manufacturing far more expensive
- Half-year profits at the posh tonic maker slumped by more than half to £10.2m
Fevertree Drinks has lowered its annual profit forecast following a surge in glass costs and poor weather in the UK.
The upmarket soft drinks producer now anticipates making between £30million and £36million in core earnings this year, compared to a prior forecast of £36million to £42million.
For the first six months of 2023, the London-based firm reported profits slumping by more than half to £10.2million because of higher staff and overhead costs, and other elevated inflationary pressures.
Bottling issues: Fever-Tree warned in January that spiralling energy bills would result in around £20million in extra glass-making costs this year
Soaring gas prices have made glass bottle manufacturing more expensive.
Fevertree, which sells about 80 per cent of its products in glass bottles, warned in January that spiralling energy bills would result in around £20million in extra glass-making costs this year.
Although the company has raised prices for customers, greater local US production, and boosted supply chain resilience, first-half gross margins still declined by 670 basis points to 30.7 per cent.
Fevertree does expect margins to improve as transatlantic freight rates shrink and the full impact of recent price hikes is recognised.
However, the firm noted that demand in the UK had been affected by ‘unseasonably poor weather’ during the critical summer trading period, having already flatlined in the first half of the year.
By comparison, revenues expanded by 40 per cent to £56.1million in the United States thanks to a bumper rise in new hospitality customers and retail sales.
Alongside a decent performance across Europe, this helped Fevertree’s overall turnover increase by 9 per cent to £175.6million for the six months ending June.
‘Whilst the vagaries of the British summer weather have impacted sales since period end…the group still expects to deliver good growth in the reminder of 2023,’ said Tim Warrillow, chief executive of Fevertree.
But slowing UK trade and the cost of a one-off inventory buyback in Australia mean the company has cut its annual revenue outlook to between £380million and £390million.
Following the update, Fevertree Drinks shares fell 0.6 per cent, or 7p, to £12.98 on Tuesday morning, but have risen by about 39 per cent in the past 12 months.
‘The business can’t seem to get a break,’ remarked Russ Mould, investment director at trading platform AJ Bell.
He added: ‘Despite delivering strong growth in the US, gaining market share in the UK and seeing progress in other parts of the world, Fevertree still seems to have as many critics as it does fans.
‘Admittedly, profits, margins and cash fell in the first-half period which suggests a business under pressure. Its challenge is to reverse that trend and get everything back on track.’
