In an update ahead of its Annual General Meeting, Fevertree announced that it's trading in-line with expectations.
In the UK, its largest market, Fevertree recorded its biggest ever quarterly market share in hospitality venues, 6% ahead of pre-pandemic levels.
Ahead of the key summer trading period, the group reiterated guidance for full-year revenue to be in the range £390m-£405m, reflecting expected growth of 13-18%.
Cost-saving efforts are expected to offset higher costs and drive margin improvements this year. As a result, full-year cash profit (EBITDA) guidance between £36m-£42m remains intact.
The shares fell 2.4% following the announcement.
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Our view
Fevertree's latest trading statement indicates that everything's bubbling along as planned, with full-year revenue and profit guidance remaining intact.
Last year, Fevertree measured double-digit revenue growth in all regions except the UK. Unfortunately, the group was unable to convert these bumper revenues into higher profits as the cost of glass continued to balloon.
Energy prices are a big input cost in making glass bottles, and when 80% of your sales are bottled in glass, any fluctuation in energy prices is bound to have a material impact on costs. That ate into profitability last year, and is expected to continue for now.
Last year, delays in ramping up production at its US East Coast bottling plant meant the group relied on shipping to serve its US customers. This left Fevertree at the mercy of port congestion and heavily inflated shipping costs throughout the year. These production problems look to have been ironed out, so we should see some benefits as US bottling production ramps up.
Outsourcing most of its operations (think bottlers and distributors) is a benefit in normal times and a large portion of profits drop straight through to operating cash flow. However, a significant increase in inventory to combat supply chain pressures, particularly in the US, has been a drain on cash and we saw group cash levels take a big hit as a result.
Explosive UK growth seems to be over too. It turns out there's a limit to how much premium tonic you can sell, and it looks like Fevertree is approaching it. Successful international expansion will be critical to continue growing, particularly in the US and Europe.
Looking at the broader picture, there are some positives to consider.
New flavoured soda launches, marketing tie-ups with spirit manufacturers, and the addition of new corporate customers are helping sales in the US and Europe to surpass pre-covid levels. Underlying growth outside of the UK looks healthy. However, a prolonged period of economic weakness and an increasingly embattled consumer could put a stop to that.
Despite the increased inventory spend, the balance sheet is still in good shape thanks to low levels of debt. But the group needs to get a tighter grip on costs so margins can start to move in the right direction again. Currently, the mammoth valuation is hard for us to stomach. We'd like concrete signs that overseas expansion is boosting the bottom line before we get excited about this mixer maker.
Fevertree key facts
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