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Friday, August 19, 2022


Fevertree – Inflation And Logistical Disruptions Continue To Keep Profit Outlook Subdued

By Anna Peel. Originally published at ValueWalk.

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In the first quarter, Fevertree Drinks PLC (LON:FEVR)’s seen bar and restaurant sales gain momentum in the UK following a tough start to the year where Omicron impacted trading. In the US and Rest of World, sales are ahead of pre-pandemic levels.

Sales in UK shops have continued to return to normal levels, as consumers shift spending to bars and restaurants, following lockdowns. In the US, demand remains ‘very strong’ with sales 2.5 times higher than pre-pandemic levels.

Q1 2022 hedge fund letters, conferences and more

Efforts to scale up production in the US continue as the group looks to reduce reliance on shipping, where higher costs and delays are hindering trading. On the West Coast, bottling lines are operational with the East Coast expected to ramp up production in the first half.

The group called out continued inflationary cost pressures and expected performance this year in line with previous guidance. Revenue is expected between £355m-£365m with cash profit (EBITDA) of £63m-£66m.

The shares were unmoved following the announcement.

Fevertree’s Earnings

Matt Britzman, Equity Analyst at Hargreaves Lansdown

“Management described trading so far as ‘solid’ and it’s certainly nice to see the group on track for guidance, but we must not forget that was downgraded in March which was met with a nasty market reaction. The main issue this year, is that little to none of the c.16% forecast rise in revenue is expected to drop into cash profits and whilst that’s hardly unusual, given the wider macro conditions meaning costs are rising for pretty much everyone, some of Fevertree’s operations should be getting more efficient.

One of the main issues called out for rising costs is shipping to the US, it’s a key growth area for the group so servicing that demand is essential. Positive steps are underway to bottle directly in the US and therefore avoid a lot of freight costs, that partnership with a local bottling company is well underway and ramping up production this year. However, we’re still yet to see any real benefit on margins which are still expected to drop quite significantly this year.

There are some positives for the longer-term investment case, growth outside of the saturated UK market looks promising and increased demand for premium alcohol and mixers looks to be stickier than first anticipated. However, when investors are expected to pay 36 times earnings for a slice of the pie, in today’s world, those margins need to start moving in the right direction.”

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