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I was browsing through the financial headlines this morning, when two in particular caught my eye, reminding me of the lengths to which are all inclined to go to find a reasonable explanation for things that have happened although we rarely understand the cause of the effect. This happens because we tend to believe that cause and effect are closely related in time and space, when, in fact, they rarely are.
I found it humorous that one headline said, “Hot weather boosts Britvic fourth quarter revenue,” whilst another declared, “Rank warns on profits as warm summer hits bingo visitor numbers.” As one former CEO friend of mine used to say, “When business is good, we need to understand why it is good. When it is bad, we need to understand why it is bad. Otherwise, we can always blame it on the weather.” It kind of makes me wonder when companies and financial writers declare why something is happening, when, if the truth be known, they have no clue. It is entirely possible that revenues are down at one company because their front line employees do not treat customers kindly and revenues are up at another company because a lot of drunks decided to sober up and needed to find a different thirst quencher.
Britvic Revenues Up Due to Warm Weather?
Britvic (LSE:BVIC) realeased its trading update for the fiscal year ending 29 September 2013, blaming the warm summer weather for a 12.8% increase in group revenue during the final quarter to £1,321.9 million. Total volume was up by 8.5% to 558 thousand liters during the quarter, although it was down 0.4% for the entire year.
Britvic’s share price was up a modest 0.75% today, a 4.5 pence increase to 604.5. Much more impressive is its increase of more than 70% since this date last year. I am, therefore, somewhat surprised at CEO Simon Litherland’s remarks that “While we have benefited from the good weather this summer, especially in July, we are particularly pleased to see that Fruit Shoot’s market share is now back at pre-recall levels and continues to grow. As a result of this strong Q4 performance, we expect that our operating profit will be slightly above our previous guidance.” Whether he is somewhat reserved by nature, or he is trying to tread lightly around the Fruit Shoot issue, I submit that this would have been an opportunity for him to cite exceptional operational and fiscal management as the reason for the company’s successes, rather than blame it, at least in part, on the weather. It is entirely possible that that approach might have boosted the share price even higher today.
Rank Profits Down Due to Warm Weather?
That’s right. The same weather that was a boon to Britvic is supposedly the bane of the Rank Group’s (LSE:RNK) profitability. “The Board anticipates operating profit for the full year to be marginally below market expectations.” Somewhat ironically, although the the company report blamed “the exceptionally hot weather in July” for a 7% decline in revenue over the last quarter, that statement seems to have been strategically placed in the report to overshadow the reference to “the disappointing start to the year” (perhaps the weather was too cold and rainy).
Surely, expecting “the first half of the financial year results to be materially below that reported in the corresponding period last year,” cannot be blamed on the weather. Else, how could Rank expect a strong second half as a result of “the benefits of management actions?” Have they found a way to control the weather?
Rank’s share price declined by 2.27% to 150.5 pence, a drop of 3.5 pence, returning to its position at this same time last year.
I guess we will never know whether or not it is the weather. I wonder if we will ever know what the real reasons are for the performance of either company. It is, in my humble opinion an unsettling thing to invest in a company of any kind that blames the weather – or any other extenuating circumstances for their performance. It reminds me to ponder the hidden truth in CEO quote in my second paragraph.
