UK Markets closed

Fevertree falls flat as soaring glass prices, strikes weigh

By Radhika Anilkumar

(Reuters) -Fevertree warned its 2023 profit would fall short of market expectations as the British tonic maker struggles with rising costs of glass bottles, ingredients and packaging, sending its shares down as much as 11% in early trading.

The company, which sells most of its drink mixers in glass bottles, said on Thursday higher energy prices because of the Russia-Ukraine war were expected to lift glass production costs by an extra 20 million pounds ($25 million) this year.

Soaring inflation in Britain, its largest market, has also led to lower living standards for many as well as rail strikes over wages, disrupting travel and hitting sales at pubs and restaurants.

Fevertree said it saw a notable impact from the strikes in the run-up to the traditionally busy Christmas trading period.

Its shares were down 5.6% at 1053 GMT, after earlier hitting their lowest levels in almost three months.

Demand from UK pubs and restaurants rose about 28% year-on-year in 2022 thanks to the first Christmas period free from pandemic restrictions, but sales to supermarkets were weaker, dragging overall UK revenue down 2%.

The London-based company expects cost pressures to continue in 2023 with further double-digit percentage hikes across its key inputs, including filling fees, ingredients and packaging.

"These temporary additional costs will unwind significantly as the energy price recalibrates," CEO Tim Warrillow said.

Fevertree said its U.S. business saw headwinds from industry-wide port congestion and logistics disruption, after its revenue there of 77.9 million pounds last year fell short of analysts' expectations of 99.2 million pounds.

"We are most disappointed by the U.S. performance where we thought market share gains might offset a deteriorating macroeconomic environment," RBC Capital Markets analysts said in a note.

Fevertree forecast adjusted core profit for 2023 of 36-42 million pounds, compared with around 39 million in 2022.

The results came as Diageo, the world's largest spirits maker, signalled on Thursday that robust demand for its drinks as people made pricey cocktails at home during COVID-19 lockdowns may be slowing in some parts of the world, particularly North America.

($1 = 0.8059 pounds)

(Reporting by Radhika Anilkumar and Raechel Thankam Job in Bengaluru; Editing by Sherry Jacob-Phillips and Mark Potter)