Fevertree profits fizz despite UK sugar tax hit to margins
The glass was half full at Fevertree today as it reported a surge in profits and revenue for 2018.
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Profit after tax rose 26 per cent year on year to £61.8m in 2018, even as the profit margin was squeezed almost two per cent to 51.8 per cent thanks to the UK sugar tax.
Revenue soared 40 per cent compared to 2017 to hit £237.4m last year.
Meanwhile net cash grew 39 per cent to £83.6m as Fevertree returned diluted earnings per share of 53.19p compared to 39.15p in 2017.
Shareholders’ final dividend hit 10.28p per share, bringing the total dividend to 14.5p per share, up from 2017’s 10.65p.
Why it's interesting
Paul Hickman, analyst at Edison Investment Research, pointed to changing drinking habits helping Fevertree beat analysts’ earnings expectations.
“The growing interest in health and wellbeing means consumers are drinking less but drinking better,” he said.
“They are turning away from drinks that feature neat spirits to long drinks such as the G&T, Moscow mule, whiskey and ginger and highball – drinks that are ideal for Fevertree’s premium range of mixers.”
With a 42 per cent UK marketshare, Hickman questioned “how on earth the competition allowed this to happen”.
“Combined with sensible range expansion and development of the on-trade channel, Fevertree remains in the optimum position to benefit from the continuing strong growth of spirits categories,” he added.
Still, shares slipped 0.5 per cent to 2,530p.
But senior market analyst Fiona Cincotta at City Index pointed to the tightening profit margin as a reason for investor caution as the UK sugar tax hit the popular mixer.
“Today's result, while by no means poor, shows margins are under pressure, both from the UK sugar tax and as management pours more dollars into building the US business,” she said.
She also questioned whether the US would dump beer and wine for simple cocktails like G&T with the same appetite British millenials have displayed.
“It's hard to see the UK gin craze being replicated with quite the same vigour in the US, whether for gin or some other spirit,” she said.
What Fevertree said
Tim Warrillow, co-founder and chief executive of Fevertree, said 2019 trading is on track to meet board expectations so far.
He added: “2018 was a significant year for Fevertree. In the UK, we strengthened our position as the leading mixer brand in the off trade. In the US, we successfully established our own operations and the business made real progress in deepening and widening its presence in multiple European regions.
Read more: Fevertree’s fizz falls flat with investors as shares dip again
“As the world’s leading premium mixer brand with a strengthening global distribution network we are well set to drive the international opportunity as the move towards the premium long mixed drink continues to gather momentum around the world.
“At this early stage in the year, the group is trading in line with board expectations and we remain excited about the size of the opportunity that lies ahead.”
More to follow.