Slowdown in UK consumer spending to dent Fevertree revenue
Fevertree warned on revenues on Wednesday as sales of its posh tonics at UK retailers were hit by a slowdown in consumer spending, but shares rallied as investors cheered US growth.
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FEVERTREE DRINKS
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While trading in the US, Europe and the rest of the world was solid, the group said a slowdown in UK consumer spending meant it now expects revenues for the year to the end of December of between £266m and £268m. This represents year-on-year growth of 12% to 13% but is below consensus expectations of about £275m.
Fevertree said it now expects to deliver revenue growth of around 2% in the UK for FY19, while growth in Europe was pegged at around 19%. Revenue growth in the US was boosted to around 34% from previous guidance of 30%, while revenue from the rest of the world was estimated at approximately 35%.
Chief exevutive officer Tim Warrilow said: "We continue to see growth across all four regions. Indeed, sales accelerated in our key growth markets of the US and Europe. Fevertree's progress in the US is particularly encouraging and the signing of a US bottling partner is a further step in building our operations in this exciting market.
"Despite challenging comparators, our performance in the UK On-Trade underlines the strength of the brand and while the mixer category in the Off-Trade is moderating alongside the recent slowdown seen across the wider grocery channel, we continue to maintain our clear UK market leadership position."
RBC Capital Markets said: "We think expectations were already low given weak Nielsen data this year. Nevertheless this is not good for sentiment. The UK business is normalising faster than expected and we do not have confidence that the US can accelerate fast enough to offset this."
Russ Mould, investment director at AJ Bell, said: "The investment case for Fevertree was originally centred upon the company enjoying rapid success in the UK. Now it is all about replicating this success in the US and so to its credit the company is living up to the hype.
"However, investors have been worried about a so-called transitionary period where the UK plateaus before the US gains sufficient scale. That now seems to the case, hence why the share price has been weak of late.
"Another concern is the rise of the teetotal movement, particularly among younger people. That begs the question of whether fast growth products like gin may have seen their best days and sales growth starts to moderate in the next few years. That would naturally have a negative knock-on effect for Fevertree and its range of mixers.
"If you take a step back and look at the bigger picture, Fevertree is still doing very well. Everyone knew the UK business would eventually mature and we’re now moving towards that stage. The real problem would have been Fevertree’s failure to achieve success in the US, something which has been the case with many other British companies.
"So far it is doing a great job stateside and so today’s warning that group revenue will come in slightly below analyst expectations is hardly a sign that everything has gone wrong with the business."
At 1350 GMT, the shares were up 8.6% at 2,019p.