Rising Costs Hurt Profits

Shares in UK beverage maker Fevertree are bouncing back today after a more than 15% plunge from yesterday’s closing price. The company, famous for making tonic mixers, issued a profit warning ahead of its upcoming earnings report in March. Fevertree warned that profits for 2023 would likely be lower as a result of rising material costs. It noted a sharp uptick in the cost of glass bottles as well as ingredients and packaging. Citing the impact of the Russia – Ukraine war, Fevertree warned that the cost of producing glass bottles would likely increase by around £20 million this year.

UK Cost of Living Crisis

Additionally, the company note the negative impact of the cost-of-living crisis in the UK as well as the recent increase in industrial action. In particular, the company noted the dampening impact the strikes across the UK had in the lead up to Christmas. Nevertheless, it still noted a 28% jump in demand year on year from pubs and restaurants though supermarket sales fell by around 2%.

On the back of weak results posted in September, today’s profit warning is disappointing for investors. Shares are currently down around 66% from 2022 highs and are sitting around the initial pandemic lows, threatening to break lower.

Near-Term Outlook

Near-term, the downside risks for the company are well signalled. However, given the weak expectations, there are upside risks across the year should these conditions begin to resolve. A sharp cooling of inflation in the UK would help lift consumer demand. Furthermore, any shift lower in the cost of materials and ingredients will also help improve the outlook for Fevertree, helping increase profit margins. With this in mind, this is a good stock to keep an eye on over coming months should the UK picture start to improve.

Technical Views

Fevertree

The move off the 2022 lows has been framed by a shallow bullish channel. However, price is now testing the channel lows after gapping down today. Below here, 894 is the block of support to note (2020 lows) with a break below there opening the way for a move down to 709 next. To the topside, 1215 is the key hurdle for bulls, a break of which should help encourage fresh bullish momentum.