Fever-Tree shares tumble 27% after firm downgrades yearly profit forecast again

Fever-Tree has lowered its annual profit outlook for the second time this year, sending its share price plummeting in early trading on Friday.

The premium drinks mixer maker, famous for its tonic waters and ginger ales, revealed that logistics and cost issues had become much more acute over the past eight weeks due largely to severe shortages of labour and glass.

Because it has struggled to hire new workers in the United States, the group said that production has had to be scaled up in Britain to meet demand, thereby leaving it more exposed to higher sea freight rates.

Problems: Fever-Tree revealed that logistics and cost issues had become much more acute over the past eight weeks due largely to severe shortages of labour and glass

In addition, the firm observed revenue being impacted by a ‘severely restricted’ supply of glass. Costs are forecast to rise by double-digit percentage levels in the second half of the year.

Though it believes some of these extra costs will be ‘transitory in nature,’ the group expects them to cut into gross margins alongside foreign exchange headwinds and modest limited sales mix.

As a consequence, the company has now downgraded its full-year underlying earnings range to between £37.5million and £45million, compared to a previous depressed forecast of £63-£66million.

Following this announcement, Fevertree Drinks shares became the top faller on the AIM All-Share Index this morning, diving 27.3 per cent to 871.5p, which means their value has declined by around two-thirds in the past six months.

Fever-Tree co-founder and chief executive Tim Warrilow acknowledged that supply chain and cost impediments have ‘significantly worsened in recent months.’

But he added that the company was working ‘more closely than ever with suppliers throughout our supply chain, to mitigate the transitory headwinds and at the same time ensure we can satisfy the strong demand we are seeing in our growth regions.’ 

Nonetheless, the London-based business has maintained its annual revenue outlook as loosening lockdown restrictions led to a massive recovery in sales across hospitality establishments.

For much of the first half of 2021, pubs, bars and restaurants were either shut or forced to operate at limited capacity, causing a significant hit to Fever-Tree’s trade and the wider hospitality sector.

During the equivalent period this year, though, the company observed ‘on-trade’ sales jumped ahead of pre-pandemic volumes in the US, where it recently overtook Scwheppes to become the country’s leading tonic water brand.

Demand from on-trade outlets also soared in the UK, climbing by 73 per cent from last year even with the impact resulting from the Omicron variant, and offsetting a downturn in purchases by ‘off-trade’ outlets, such as off-licences and supermarkets.

In addition, Fever-Tree expanded its leading market share position in Australia and Canada, and achieved sales growth of 27 per cent in Europe on the back of strong performances from major territories in Southern Europe.

Warrilow said: ‘Despite the current challenges of the volatile logistical and cost environment, we continue to make good progress across our regions. 

‘The strong and growing consumer demand for the brand, our exciting pipeline of innovation, and the growing interest in long-mixed drinks, gives us more confidence than ever in the long-term opportunity.’

This post first appeared on Dailymail.co.uk