ii view: Fevertree shares slump to eight-year low

First-half results to 30 June

• Revenue down 2% to £173 million
• Adjusted profit up 79% to £18 million
• Pre-tax profit down 30% to £17.6 million
• Interim dividend up 2% to 5.85p per share
• Cash held down 13% to £66 million

Guidance:

• Now expects full-year revenue growth of between 4% and 5%, down from a previous 10% 

Chief executive Tim Warrillow said:

“Whilst the first half was challenging, we are controlling the controllables. We're optimistic of an acceleration of growth across the second half of the year and have seen a much more positive trading performance in July and August.

“Looking further ahead, our continued investment in the brand and focus on innovation in recent years ensures we are better positioned than ever to capitalise on the long-term drink trends, both in terms of continued spirit growth and premiumisation but also as adults continue to seek out a broader range of premium drinks, both with and without alcohol."

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ii round-up:

Premium soft drinks maker Fevertree Drinks (LSE:FEVR) today outlined sales and profits missing City forecasts, hindered by ongoing UK consumer caution and poor early summer weather across the UK and Europe. 

First-half UK and European revenues fell 6% and 12% respectively, leaving adjusted profit (EBITDA) of £18 million below analyst estimates of around £21 million. Fevertree now expects annual revenue growth of up to 5%, down from a previous estimate of 10%. Analysts now expect to make a low-teens cut to their full-year 2024 adjusted profit forecasts.   

Shares in the AIM-listed company fell 10% in UK trading having come into these latest results down around 16% year-to-date. That’s similar to alcoholic beverage maker Diageo (LSE:DGE). Soft drinks rival Britvic (LSE:BVIC) is up by over 50% in 2024 following a takeover approach. The FTSE AIM 50 index is up almost 3% over the last year, but the AIM All-Share index is marginally lower. 

Fevertree products including tonics and ginger ales now sell in more than 85 countries. Sales for what has become its biggest region, the USA, rose 7% to £60 million. Sales for the Rest of the World (RoW) and including Australia climbed 56% from a year ago to £15 million. 

The West London headquartered company continues to expect a 6% improvement in its gross profit margin over the full year, aided by improved glass bottle prices, easing inflationary pressures and more favourable trans-Atlantic freight costs.  

An interim dividend of 5.85p is up from 5.74p per share last year and is payable to eligible shareholders on 18 October. 

Group cash held of £66 million continues to underpin what Fevertree summarises as a ‘strong’ balance sheet, with management expecting to find itself in a position to return surplus cash to shareholders during the 2025 financial year. 

A full-year trading update to late December is likely mid-to-late January. 

ii view:

Started by Charles Rolls and Tim Warrillow in 2004, Fevertree today makes premium soft drinks including tonics, ginger ales, ginger beer, cola, sodas, and lemonades. The US during its last 2023 financial year generated its biggest chuck of sales at 32%, followed closely by the UK at 31.5%, Europe 29% and RoW the balance of just under 8%.  

For investors, the weather and its impact on demand clearly cannot be overlooked. Pressure on UK consumer disposable incomes includes elevated borrowing costs. Demand for alcoholic spirits, regularly mixed with Fevertree drinks, remains soft in certain parts of the world, while overseas sales can bring currency headwinds. 

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To the upside, ongoing product innovation is assisting with non-tonic sales now at around 40% compared to 25% in 2019. Group initiatives to reduce costs, and including plans for production in the USA itself, are ongoing. Market share gains continue to be made, scope for further geographical expansion persists, while net cash held underpins a robust balance sheet with management hopes for cash returns next year now being raised. 

While a fresh take on soft drinks continues to offer long-term growth potential, and bargain hunters might be tempted by shares at an eight-year low, another downgrade of sales and profit hopes is likely to keep many prospective investors firmly on the sidelines.  

Positives: 

• Diversified geographical sales
• Strong brand 

Negatives:

• Pressured consumer spending
• Potential currency headwinds

The average rating of stock market analysts:

Hold