Strong Q3 Growth for Kerry With Volume and Pricing in Line With Industry Outperformance

Kerry Group reported third-quarter fiscal 2022 results with volumes up 6.6%, driven by solid performance in taste and nutrition (8.5% volume growth year to date and 15.3% in the third quarter) and higher-than-expected volume and pricing growth in the dairy business (volumes of 1.8% and pricing of 33.6% reflected the significant increases in dairy prices and raw material costs). The group's EBITDA margin was down 40 basis points, driven by taste and nutrition (down 80 basis points for the segment) with operating leverage, currency, and the impact from acquisitions/disposals only partially offsetting input cost inflationary pressures. Regionally, taste and nutrition's growth was robust across markets with volumes up in high single digits (across the Asia-Pacific, Middle East, and Africa region and Americas volumes were up 9.0% and 9.3% respectively, with Europe slowing down a bit at 4.4% growth in the quarter), driven by retail and food-service channels (out-of-home consumption continues to recover, with double-digit growth in the period). Management narrowed guidance for fiscal 2022 to 6%-8% from 5%-9% constant-currency-adjusted EPS growth (versus 7.3% on a reported basis in our model). We do not expect to change our EUR 109 fair value estimate after incorporating these numbers. Shares are undervalued.