Shares in AG Barr (LON:BAG) plunged after the beverages producer warned supply constraints impacted Q2 sales. Despite this short-term blip, the IRN-BRU maker still delivered resilient H1 revenue growth of 8%.
Reassuringly, the Rubicon-to-Boost brands owner maintained FY27 profit guidance. The FTSE 250 firm insisted recent supply constraints are now ‘being resolved’.
Supply chain pain
In an update covering the half ended 1 August, AG Barr explained that revenue was impacted by reduced stock availability as Q2 progressed. This mainly reflected internal supply chain issues. However, external issues associated with third party manufacturing were also a factor.
The H1 revenue impact is estimated to be £10 million, warned the Cumbernauld-based company.
And yet AG Barr remains confident of delivering double-digit revenue growth for FY27. Furthermore, the resilient drinks group still expects to serve up adjusted pre-tax profits in line with the £71.9 million consensus estimate. That implies solid year-on-year profit growth of roughly 10%.
AG Barr said it expects to deliver an improved H2 revenue performance. Management is drawing confidence from market share gains, an ‘encouraging innovation performance’ and supply chain actions.
Core brand growth
H1 revenue is expected to be roughly £246 million, up 8% year-on-year reflecting continued ‘core brand growth’ and the contribution from recent acquisitions. H1 operating margin is expected to be in the middle of the 14% to 16% guidance range.
AG Barr also insisted its core brands are performing strongly in the market. The company is carrying good trading momentum into H2 from distribution gains, innovation launches and brand marketing activities.
CEO Euan Sutherland commented: ‘During the first half of the year we made significant progress against our strategic priorities. We completed the integrations of both Frobishers and Fentimans, continued to successfully drive our core brand propositions and made further progress with our manufacturing investment programme.’
He added: ‘Consumer demand for our brands is strong, with all core brands gaining market share. The supply constraints which impacted Q2 performance are being resolved and, with strengthening trading momentum driven by our refreshed core brands and new product development, we remain confident for the full year.’
We remain big fans of AG Barr on account of its strong brands, pricing power, high operating margins and progressive dividend. Despite its size and FTSE 250 status, the firm still has room to grow in a large and growing soft drinks market with defensive characteristics.
There’s no glossing over the fact today’s update is a setback. But management seems to be fixing the supply chain problems. AG Barr’s core brands continue to perform strongly and the company is delivering on its long-term growth strategy.
We note with interest that IRN-BRU exited H1 with growth ahead of the market in both England and Scotland. That growth was most strong in England following the recent rebranding of IRN-BRU Zero.
Broker views
Shore Capital said management is undoubtedly frustrated to have left some ‘sales on the table’ over the past six months. Nevertheless, the broker takes ‘encouragement from the market share gains despite these headwinds and that the remedies put in place will resolve the availability issues through Q3’.
Peel Hunt observed that AG Barr has undergone much change and ‘some teething issues are to be expected. The fact the company expects FY operating profit to be in line with consensus despite operational disruptions highlights its strong cost control.’
Read the press release here: https://www.agbarr.co.uk/investors/
