Irn-Bru maker AG Barr has warned that profits will collapse this year due to poor weather – particularly in its native Scotland – and customers turning away from its reduced-sugar drinks ranges.
Bosses warned that sales will drop 10% and profits will be down by up to 20% as they struggle against a strong year in 2018.
The news sent shares plummeting – down 26% to 645p in early trading on Tuesday as investors and analysts reacted with surprise.
The company said the problem “has been exacerbated by some specific brand challenges, particularly in Rockstar energy and Rubicon juice drinks, as well as disappointing spring and early summer weather, most notably in Scotland and the North of England, and compounded further as we approach the half-year when the prior year comparative weather was at its peak”.
AG Barr’s Rubicon division has faced challenges since the introduction of the sugar-tax levy, with several drinks companies having to change their recipes to reduce sugar levels.
This has led to a backlash among some customers, who have complained about the new tastes.
The Rockstar energy division has also had to contend with a crackdown and awareness-raising by campaigners about teenagers consuming high-caffeine drinks. Several supermarkets have banned sales of the products to under-18s.
We are focused on returning to growth and will continue to take the actions we believe necessary to succeed in the dynamic environment within which we operateRoger White, AG Barr
AG Barr chief executive Roger White said that although the cocktail mixer division Funkin is growing well, it has been a challenging start to the year for the rest of the company.
He added: “Weather comparatives and trading, particularly in the impulse on-the-go market, have been even tougher than expected which, along with some brand-specific challenges, have led to a short-term impact on our financial performance.
“We are focused on returning to growth and will continue to take the actions we believe necessary to succeed in the dynamic environment within which we operate.”
These actions include launching three new Rockstar drinks by the end of the summer and “recipe improvement activity” for Rubicon juice drinks.
However the company warned “the benefit of these actions will not be felt until later in the second half of the financial year”.
Sales for the 26 weeks to July 27 are now expected to be around £123 million – down 10% on last year – and further one-off costs can be expected to be announced later in the year, the company added.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “To say this is a curve ball is an understatement. Consumer goods companies like AG Barr are supposed to be reliable compounders, with sales that turn up come rain or shine.
“The cocktail of woes that have struck the group are more than a small disappointment, but it’s important not to lose sight of some of AG Barr’s underlying attractions.”
Russ Mould, investment director at AJ Bell, said: “One can excuse the drinks company for not selling as many products in these conditions; however, specific brand challenges with Rockstar and Rubicon are slightly concerning.”