Fevertree Surges on Upbeat Outlook, Dividend Hike

© Reuters

By Geoffrey Smith

AiVIF.com -- Fevertree (LON:FEVR) stock rose by the most in two months after its half-year results suggested that the worst of its recent supply chain problems could be over.

The maker of mixer drinks was confident enough about its outlook to raise its interim dividend by 2% to 5.63 pence a share, despite a drop in profit as rampant cost inflation ate into its margins.

The shares had lost 30% in a day in July when Fevertree warned that a shortage of workers and glass in the U.S. were forcing it to supply its most important growth market from its U.K. base, incurring much higher freight costs.

However, they rose over 12% on Tuesday after its half-year results indicated no further deterioration in conditions: revenue rose 14% from a year ago, but underlying earnings before interest, tax, depreciation and amortization fell by 25%. The margin compression was no worse than what the company had flagged in July, with gross margin falling 670 basis points to 37.4% and the adjusted EBITDA margin falling 700 basis points to 13.6%.

Consequently, the company upheld the revised guidance that it had issued in July.

The maintained guidance “may provide some relief to the stock” given this year’s weakness, Goodbody analysts wrote in a note to clients. Still, they added, there are “challenges and pressures on costs and profitability” in the near term.

Fevertree indicated that it still sees enormous opportunity in the U.S., where demand for its products considerably outran its ability to deliver in the second quarter.

"Our three-year compound annual growth rate at retail in the U.S. is almost three times the growth rate of the total mixer category," the company said in its statement. "We will continue to invest to capture the enormous potential we see for our brand in this market."

Fevertree also cashed in on the strong summer tourism season in Europe, the first time in three years that Europeans have been able to go on vacation largely unrestricted by Coronavirus mitigation measures. Revenue from the region rose 27%, thanks largely to tourism-heavy southern Europe, where the company said, "the brand is seeing significant consumer pull and momentum."