Fevertree shares sink 20 per cent as it warns on profit
Fevertree’s shares plunged today as it warned that “subdued” Christmas trading in the UK would knock 2019 profit lower than last year’s total.
The tonic maker now expects revenue growth of 9.7 per cent to £260.5m, compared to 2018’s 40 per cent growth rate.
That will see sales miss expectations for 2019, leading Fevertree to warn full-year earnings would be around five per cent lower than 2018 as a result.
The board revealed that key UK trading slipped one per cent to £132.6m, blaming weak consumer confidence and a subsequent slowdown in spending.
CEO Tim Warrillow said:
Despite the subdued end to the year in the UK, we have delivered a strong performance across many of our regions in 2019 and begin 2020 with real momentum in a number of key growth markets. “Whilst the UK mixer category has clearly not been immune from the consumer belt tightening seen in recent months, we remain the clear category leader and have a strong platform to return to growth during 2020 and beyond
Chief executive Tim Warrillow
“Whilst Fevertree remained the clear market leader, the expected improvement in trading during this important period did not materialise with the macroeconomic uncertainty leading to a subdued end to the year across both the on and off-trade,” the firm added.
Fevertree’s shares sank almost 23 per cent to 1,544.5p in early trading as investors sold out of the tonic company. That was down from 1,995p at last Friday’s close to leave shares at their lowest levels since 2017.
The company warned that UK conditions will remain “challenging” into the first half of 2020, and that it will not return to growth until the second half of the year.
The UK’s decline in sales contrasted with a 33 per cent jump in the US, a 16 per cent climb in Europe and a 32 per cent rise in the rest of the world for Fevertree.
But it also warned of low double-digit growth in the US as it ploughs more money into expanding in the country.
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The tonic maker said the US’ growth was “particularly encouraging” but its investment plans will curb 2020 growth in the region, which it now expects to hit low double digits this year.
“We are confident that this investment will drive significant long-term volume and profit growth in what is expected, over time, to become a very significant region,” Fevertree added.
Investment in growth regions means Fevertree expects its gross margin to move to 49 per cent while earnings before interest, tax, depreciation and amortisation (Ebitda) will hit 28 per cent.
The company expects its year-end cash position to be £128m.
“Fevertree has not entirely lost its sparkle, but tough Christmas sales in Britain are a bitter tonic when it needs to be focusing on the key US market,” Markets.com’s chief market analyst Neil Wilson said.
“The fact is the UK remains where the earnings come from so the softness here is a short-term drag on profitability. Management now expects earnings to decline by around five per cent when compared to 2018.”
Liberum said it had been caught out by the higher US investment was coinciding with lower growth and put the stock under review.
“The company notes that despite stepped-up investment in the US, it anticipates low double-digit growth in 2020,” the broker said. “We already modelled stepped up investment for the US market but we did not expect this stepped-up marketing expense to coincide with low double-digit growth.”
Fevertree had already cut its revenue outlook in November to between £266 and £268m but today’s figures came below that revised guidance.
It follows a spate of underwhelming Christmas trading updates from the likes of Marks & Spencer, Sainsbury’s and shopping centre landlord Intu.
Official figures showed that UK retail sales fell during the crucial Christmas shopping period last year, sending sterling lower.
Main image credit: Fevertree