Fever-Tree’s US push pays off as sales in the UK lose their fizz

Fever-Tree Drinks shares rose sharply on Thursday despite the soft drinks maker revealing a downturn in UK sales and pressure on US margins. The tonic maker reported a 15 per cent drop in its first-half pre-tax profit, as UK demand proved ‘subdued’ with revenues in Fever-Tree’s domestic market falling 6 per cent to £48.1million.

Solid off-trade demand in the UK was offset a ‘challenging backdrop’ in the on-trade market, Fever-Tree said, citing ‘higher duty, wages and business rates driving pricing pressure which is disproportionately impacting the spirit and mixer categories’. But Fever-Tree’s total adjusted revenues ticked 2 per cent higher to £172.2million, as revenues in the US rose 6 per cent and rest of world sales soared 17 per cent.

The group has been expanding in the US via a partnership with brewing Giant Molson Corrs, which bought a stake in Fever-Tree in return for the exclusive right to sell, distribute and produce the brand in the the country. A majority of Fever-Tree products sold in the US are still currently produced in Britain, after the beverage maker wound down a major US bottling arrangement ahead of its partnership.

Fever-Tree said in a statement: ‘While this has exposed the partnership P&L to a tariff impact, we are jointly working hard to mitigate this impact ahead of the prospective onshoring of US production in the medium term.’ In July, FeverTree said it would equally split costs of the 10 per cent US tariffs on UK imports with brewer Molson Coors as part of a partnership that began in January.

Improvements in its global supply chain, procurement processes alongside the prospective onshoring of US production by Molson Coors over the medium term would allow for margin recovery over time, the firm said on Thursday. Chief executive Tim Warrillow said: ‘The transition of the business to Molson Coors is progressing well and despite the complexity of such a transition. ‘In the UK, the wider on-trade category continues to face challenges, but our off-trade performance has remained robust.’

Warrillow said that in the off-trade more customers were buying products from across the portfolio, such as ginger beer or soft drinks, with products beyond tonic comprising 45 per cent of total group revenue. He added: ‘The group has made a good start to the second half of the year across our regions and we remain comfortable with full year market expectations.’ Fever-Tree reported a first-half pre-tax profit of £11.2million, against £13.2million a year earlier.

The group’s cash stash nearly doubled to £130million, reflecting both trading and inflows from the Molson Coors partnership. The company’s board declared an interim dividend of 5.97p per share, up 2 per cent on the previous year. It also announced an extension of its share buyback programme by a further £30million to continue next year.

Mark Crouch, a market analyst at eToro, said: ‘FeverTree’s much-heralded partnership with Molson Coors, was meant to put some fizz back into the premium mixer. ‘A gateway to scale a chance to sharpen its presence in the all-important US market. There are signs of promise, US revenues edged higher in the latest update, helped by stronger distribution and brand visibility. But momentum still feels laboured.’