Fevertree cuts profit outlook due to poor UK weather

Fevertree Drinks has cut its annual profit forecast following a rise in glass costs and poor weather in the UK.

The upmarket soft drinks maker now expects to post core profit of £30m to £36m this year, compared with a previous forecast of £36m to £42m.

For the first six months of 2023, the London-based company reported a profit fall of more than half to 10.2 million pounds, due to higher staff and overhead costs and other increased inflationary pressures.

Bottling problems: Fever-Tree warned in January that rising energy bills would result in around £20 million in additional glass manufacturing costs this year

Rising gas prices have made the production of glass bottles more expensive.

Fevertree, which sells around 80 percent of its products in glass bottles, warned in January that rising energy bills would result in around £20 million in additional glass manufacturing costs this year.

Although the company increased prices for customers, strengthened local U.S. production and increased supply chain resilience, first-half gross margins still fell 670 basis points to 30.7 percent.

Fevertree expects margins to improve as transatlantic freight rates fall and the impact of recent price increases takes full effect.

However, the company noted that UK demand had been hit by “unusually poor weather” during the critical summer trading period and had already stagnated in the first half of the year.

By comparison, revenue in the United States rose 40 percent to £56.1 million, thanks to a surge in new hospitality customers and retail sales.

Alongside a good performance across Europe, this helped Fevertree’s total sales rise 9 per cent to £175.6 million in the six months to June.

“While the vagaries of the UK summer weather have impacted sales since the end of the period, the group continues to expect good growth for the remainder of 2023,” Fevertree CEO Tim Warrillow said.

But weakening UK trade and the cost of a one-off stock buyback in Australia means the company has cut its annual sales forecast to between £380m and £390m.

Following the update, shares in Fevertree Drinks fell 0.6 per cent, or 7p, to £12.98 on Tuesday morning, but are up around 39 per cent in the last 12 months.

“Business doesn’t seem to be catching a break,” noted Russ Mold, investment director at trading platform AJ Bell.

He added: “Despite strong growth in the US, market share gains in the UK and progress in other parts of the world, Fevertree still appears to have as many critics as fans.”

“Admittedly, profits, margins and cash declined in the first half, suggesting the company is under pressure. The challenge is to reverse this trend and get everything back in order.”