British tonic maker Fevertree Drinks posted an annual profit in line with estimates, buoyed by a robust performance of its U.S. market and increased regional production to offset inflationary pressures due to elevated glass-making costs.
The company, which was founded in 2003, had struggled with rising glass costs in Britain due to energy price hikes following the Russia-Ukraine conflict.
This led to Fever-Tree raising its prices and boost U.S. glass production, helping it overcome the cost pressures. Its new glass contracts and lower Trans-Atlantic freight rates are expected to help profit growth in 2024.
Full-Year Profit
The London-based company, which sells most of its drink mixers in glass bottles, said on Tuesday its adjusted core profit was at about £30.5 million (€35.59 million) for the full year ended Dec. 31, meeting a company provided analysts' consensus of £30 million (€35 million).
It said in a statement that the New Year has been in-line with its expectations so far, encouraging the company to reiterate its forecasts for the year.
'Market Share Gains'
"2023 was a year when the Fever-Tree brand once again grew in breadth and depth, with market share gains across the globe," commented Tim Warrilow, co-founder and chief executive. "Perhaps the most significant milestone was establishing the US as our largest region, and with it, extending our market leadership position in both the US Tonic Water and Ginger Beer categories."
Warrilow added that while the traditional 'gin and tonic' was a key internal growth driver for the business, its non-tonic portfolio showed strength in the past year, including its gingers, sodas and cocktail mixers range.
"Taken alongside softening inflationary pressures, the operational efficiencies we are delivering means I am confident that we are entering 2024 in a very strong position from an operational perspective and have an excellent platform for strong profitable growth going forward," he said.
Analyst Comment
Commenting on the group's performance, analyst Charlie Huggins of Wealth Club said, "Fever-Tree faced a cocktail of headwinds in 2023. Significant cost inflation, adverse weather and declining consumer sentiment resulted in slowing revenue growth and a significant decline in margins. Throw a few self-inflicted operational issues into the mix and it is no surprise to see the shares lose their fizz in the last eighteen months.
"The biggest challenge facing Fever-Tree has been the unprecedented cost pressures, especially for glass, energy and freight. This has led to significantly lower profit margins. The good news is that inflationary cost pressures have now eased, which should allow margins to recover, starting in 2024.
"Overall, it's been a tricky few years for Fever-Tree and its reputation amongst the investment community has suffered. However, the outlook for 2024 is more encouraging, especially with regards to costs and margins. If the group can deliver improved sales and margins, at least in line with guidance in the year ahead, it will go a long way to restoring its credibility."
Additional reporting by ESM
