AG Barr disappointed City hopefuls this week, after it revealed a distribution mishap had wiped around £10m of sales from an otherwise strong start to the year.
The Scottish drinks maker’s share price slumped 8% to 599p in the wake of Tuesday’s interim announcement, before easing to around 610p later in the week.
Barr blamed the £10m headwind on “reduced stock availability” due to misplaced inventory, with the mishap linked to the group’s ongoing transformation programme and issues with third party manufacturers.
The error knocked Barr’s expected sales for the first half to around £246m. While that will be up 8% on last year, the gain has come entirely from its acquisition of Fentimans and Frobishers.
Organic sales growth appeared to be broadly flat in the first half thanks to the error – which knocked around four percentage points off growth. Barclays had anticipated even higher organic growth of 4.6%.
The bank’s analyst Ashutosh Jain said investors’ “key concern” was over the “quality and sustainability” of organic growth.
“Acquisition-led growth can support reported revenues in the near term but is unlikely to substitute for sustained underlying demand growth,” he added.
Barr, however, said it was confident in a better second-half performance, with market share gains in core brands, “exciting innovation” and supply chain improvements pushing it to maintain its full-year sales and profit guidance despite the error. It anticipated revenue growth in low double-digits for the year.
Market share gains were particularly apparent for Irn-Bru and Boost, with the latter gaining double-digit sales growth through increased distribution – though its Funkin and Barr-branded drinks lost share, according to Barclays analysis.
In light of the gains in its core brands, Panmure Liberum analyst Anubhav Malhotra said the unexpected headwind was “particularly frustrating”.
“AG Barr has scored an own goal,” he said. “Underlying demand remained strong, and if not for the commercial planning mishap, the group would have met, if not beaten, expectations.”
But Peel Hunt analyst Andrew Ford said “teething issues” were to be expected of a company undergoing significant change.
Barr has been busy integrating its new acquisitions – a process now complete in H1 – while undertaking a strategic overhaul under a largely new leadership team.
“The fact the company expects FY operating profit to be in line with consensus despite operational disruptions highlights its strong cost control,” said Ford. “We expect H2 margins to strengthen as integration benefits, operational efficiencies, and insourcing initiatives begin to flow through, combined with improving product availability and continued market share gains across the core portfolio.”
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