- Margins struggling
- Europe drives revenue growth
Fevertree Drinks’ (FEVR) shares fell by more than a quarter after it lowered its margin and profit guidance and warned of cost and logistics headwinds. In a trading update for the six months to 30 June, the Aim-traded mixers supplier said that its “outlook has materially changed” in a very challenging trading environment.
It looks as if the company’s capital-light business model is struggling to protect it against rising input costs. Fevertree said that “rapid shifts in the operational and cost backdrop” are hitting it hard, and highlighted pressures around labour shortages, restricted glass availability, and soaring glass costs.
Gross margin is now expected to be 33 to 35 per cent for the full year to 31 December, 400 to 600 basis points down on management's previous forecast. Cash profit hopes have been cut down to a range of £38mn to £45mn for the year, after the company said in May that it expected to hit at least £63mn.
In better news for the company, top-line guidance was left unchanged. Revenue of £355mn to £365mn is forecast for the year. In the first half, Fevertree’s sales were up by 14 per cent on a constant currency basis to £161mn. This was driven by the performance in European markets, with sales up by 27 per cent to £52mn, and “very strong” demand in the US.
Numis analysts said that “the lack of visibility in margin recovery poses a clear challenge to the investment case in the near term” but argued that “the underlying demand strength in core markets suggests that once the supply chain issues are resolved margins have the potential to recover rapidly”. We stick with hold for now, given a strong revenue performance, but are watching closely for signs of a further worsening of the outlook.
