A cool start to the summer, rising competition and a slowdown in the gin trend have knocked the fizz out of the drinks brand Fever-Tree, which has posted a worse than expected slowdown in UK sales.
Shares in the tonic water maker dived more than 10% on Tuesday, wiping more than £300m off the company’s value, as it said poor weather in the three months to 30 June had dampened growth rates.
Fever-Tree has been a strong stock market performer since its float in 2014 – creating a £2.4bn business that has made multimillion-pound fortunes for the company’s co-founders Tim Warrillow and Charles Rolls – but its shares have fallen back nearly 50% since their peak last year.
Fever-Tree said UK sales rose 5% in the six months to 30 June, compared with the 8% expected by analysts. Total sales were up 13% against a hoped-for 15%, as underlying profit for the group increased by 8% to £36.7m.
Analysts said Fever-Tree was battling against a major promotion by rival Schweppes as well as a general slowdown in the drinks trade compared with last year’s hot summer.
Warrillow, Fever-Tree’s chief executive, said the industry had faced an “exceptionally tough” period compared with last year, when hot weather combined with the royal wedding and the World Cup to create a thirsty backdrop for G&T drinkers. Warrilow and Rolls founded Fever-Tree in 2005, naming it after the colloquial term for the cinchona tree, the bark of which produces quinine – a key ingredient in tonic water.
The British gin revival has also lost momentum, although Fever-Tree said it was still growing more than 10%, albeit in comparison with expansion of more than 50% last year.
The Irn-Bru maker, AG Barr, issued a profit warning last week as it said it expected sales to drop 10% this year because of the cooler weather and a recipe change prompted by the sugar tax.
Russ Mould, an investment director at the stockbroker AJ Bell, said first-half sales growth of 24% in the US was an important counterpoint to trading in Fever-Tree’s domestic market. “Fever-Tree’s poor UK growth was not disaster territory as the company’s future growth is arguably dependent on cracking the US market – and progress here is good,” he said.
“Ultimately, Fever-Tree has become a victim of its own success. Soaring growth rates in recent years have raised expectations for its performance and failure to deliver anything but superior rates leaves it open to fierce criticism.”
Other analysts suggested Fever-Tree was finding it harder to locate new outlets in bars, pubs and supermarkets in the UK, where it now controls 45% of the on-trade – the industry term for bars, restaurants and pubs – by value.
Warrillow said the company expected to meet its profit targets despite the summer slowdown. “We don’t think anything underlying has changed. That’s why we’re optimistic that in second half [of the year], we can return to double-digit growth in the UK,” he said.
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