Fevertree profit jumps 64% but results fail to impress amid high expectations

Fevertree Drinks, a supplier of premium drink mixers, reported a 64% jump in full-year pre-tax profit on Tuesday as revenue rose amid growth across the group, but the results failed to impress amid high expectations.

In the year to the end of December 2017, pre-tax profit increased to £56.4m from £34.3m in 2016, on revenue of £170.2m, up 66%. Adjusted earnings before interest, tax, depreciation and amortisation were up 64% to £58.7m and the company declared a final dividend of 7.64p per share, taking the total dividend to 10.65p, up from 6.25p.

The gross profit margin was a little softer than the previous year at 53.5% versus 55.2%, but this was still ahead of expectations.

Fevertree said it saw continued strong growth across all regions, channels, flavours and formats, with the UK doing particularly well again, with sales growth of 96% in the year.

Co-founder and chief executive officer Tim Warrillow said: "It has been a year of significant progress for Fevertree. We have continued to see strong growth across all our regions with the UK once again delivering an exceptional performance culminating in Fevertree ending the year as the leading mixer brand at UK retail.

"Whilst this is a notable achievement, there remains a significant opportunity in front of us across all our regions as Fever-Tree continues to drive the evolution of the mixer category.

"We have had an encouraging start to the year. Our first mover advantage, pioneering approach, brand strength, penetration and relationships means we are ideally positioned to be able to take advantage of the opportunities ahead."

At 0910 GMT, the shares were down 4.1% to 2,582p.

Neil Wilson, senior market analyst at ETX Capital, said: "The market has become rather accustomed to Fevertree beating expectations and upgrading guidance (January’s was the sixth in a year), so when results are just moderately ahead, things look a little flat.

"We note very strong results today of course but the outlook for 2018 seems a less sparkling than we are used to, with management simply saying it is ‘encouraging’, which explains why we’re seeing a bout of profit-taking in early trade."

He added: "Given we are close to the end of Q1, there ought to be decent visibility on sales at this stage, so this would appear to be a relatively cautious statement in the context of the last year or so. We wait to see whether it’s conservatism or a reflection that keeping up with the sky-high expectations from here on out will be increasingly tough."

Meanwhile, Connor Campbell at Spreadex said the company had fallen foul of investors' "sky high expectations". He said the bone of contention was the dip in the gross margin, which "gave investors reason enough to question the stock’s all-time high position".

RBC Capital Markets said: "Under-penetration of the premium mixers category, together with Fevertree's strong execution have underpinned Fevertree's extraordinary growth so far. That said, although we think the opportunity remains compelling, especially in the US, we remain cautious on the potential increase in the competitive environment in the UK, the company's biggest market (around 50% of group's sales). Consequently, we rate the company as sector perform, speculative risk."