Company Reports

Kerry Group reported first-quarter results, with volumes up 1.9% and a negative pricing contribution (negative 5.3%) reflecting a deflationary environment. For the first quarter, volume growth for the group's largest segment, taste and nutrition, was up 3.1%, primarily driven by the food service channel (up strongly by 8.6%) with volumes in the retail channel returning to growth. Within this, emerging-market volumes were up 5.2%, while the Americas region rebounded nicely with volumes up 3.6%, driven by North America's return to growth. The dairy business continues to underperform, down 16.7%, with lower dairy market prices hitting pricing (down 13.7%).

Kerry Group reported preliminary fiscal 2023 results, with volumes down 0.9% and a negative pricing contribution (negative 0.7%) reflecting a deflationary environment. For the fourth quarter, volume growth for the group's largest segment, taste and nutrition, was up 0.1%, versus up 1.1% for the year, primarily driven by the foodservice channel (up strongly by 9.3%) with volumes in the retail channel falling behind (down 2.2% for the year). This reflects customer inventory management (destocking) and softer market dynamics. Within this, emerging-market volumes were up 4.1%, while the Americas region was the main detractor with volumes down 1.8% for the year and down 1.9% in the fourth quarter, driven by North America. The dairy business continues to underperform, down 6.5% for the year and down 7.5% in the fourth quarter, with lower dairy market prices hitting pricing (down 9.3% for the year).

Kerry Group reported third-quarter results, with volumes up 0.1% and a negative pricing contribution reflecting a deflationary environment. For the nine months, pricing and volumes were up 1.3% and 0.4%, respectively, driven by good performance in taste and nutrition (1.5% volume growth and 3% pricing) and a decline in volumes in the dairy business (volumes down 6.2% and pricing down 6.5% as a result of reduced dairy prices and soft market supply dynamics).

Kerry Group reported first-half results with volumes up 0.6% and pricing contributing 4.5% at the group level, driven by good performance in taste and nutrition (1.4% volume growth and 5.4% pricing) and a decline in volumes in the dairy business (volumes down 2.5% and pricing of 0.4% a result of reduced pricing in dairy prices during the second quarter). Taste and nutrition's performance was driven by the foodservice channel (innovation with quick-service restaurants and coffee chains providing new menu developments, seasonal offerings); the retail channel was behind, which reflects customers' inventory management in North America. The group's EBITDA margin improved substantially in the second quarter (up 20 basis points), but was still down 20 basis points in the first half (down 70 basis points in the first quarter), driven by taste and nutrition (down 20 basis points for the segment in the first half) with efficiencies only partially offsetting input cost inflationary pressures. Regionally, apart from the Americas (volumes down 2.2%), the group's growth was robust across the rest of its markets with volumes up by midsingle digits (across the Asia-Pacific and Europe, Middle East, and Africa regions volumes were up 8.8% and 5.3% respectively in the second quarter), driven by retail and foodservice channels (out-of-home consumption continues to recover due to seasonal products and limited time offerings). Management confirmed cautious guidance for fiscal 2023 with adjusted EPS growth expected at 3%-7% on a constant-currency basis before an expected 2% dilution in the year from the sale of the sweet ingredients portfolio. We do not expect to materially change our EUR 102 fair value estimate after incorporating these numbers. Shares are undervalued.

Kerry Group has evolved from its humble roots as an Irish dairy co-operative into a global flavor and nutrition powerhouse serving the food, beverage, and food-service sectors. Our wide economic moat rating is supported by intangible assets and switching costs stemming from the company's wide range of ingredient solutions and strong service component, which contributes to partnershiplike client relationships.

Kerry Group reported first-quarter results with volumes up 0.2% and pricing contributing 8.3% at the group level, driven by solid performance in taste and nutrition (1.2% volume growth, 7.2% pricing) and a sharp decline in volumes in the dairy business (volumes down 5.8% and pricing of 14.4% reflecting still significant increases in dairy prices and raw material costs). Taste and nutrition performance was driven by the food service channel (innovation with quick service restaurants and coffee chains on new menu development, seasonal offerings), with the retail channel behind reflecting customers' inventory management in North America. The group's EBITDA margin was down 70 basis points, driven by taste and nutrition (down 80 basis points for the segment) with efficiencies only partially offsetting input cost inflationary pressures. Regionally, apart from Americas (volumes down 1.6%), the group's growth was robust across the rest of the markets with volumes up mid-single digits (across the Asia-Pacific, Middle East and Africa region and Europe, or APMEA, volumes were up 5.2%, and 3.9% respectively), driven by both retail and food service channels (out-of-home consumption continues to recover, through seasonal products and limited time offerings). Management confirmed cautious guidance for fiscal 2023 with adjusted earnings per share growth expected at 3%-7% on a constant-currency basis before an expected 2% dilution in the year from the potential sale of the sweet-ingredients portfolio. We do not expect to materially change our EUR 109 fair value estimate after incorporating these numbers. Shares are undervalued.

Kerry Group reported full-year fiscal 2022 results with volumes up 6.1% and pricing contributing 11.7% at the group level, driven by solid performance in taste and nutrition (8.5% volume growth, 8.7% pricing for the year and 6.1% volume growth in the fourth quarter) and continued volume and pricing growth in the dairy business (volumes of 0.2% and pricing of 36% reflected the significant increases in dairy prices and raw material costs). The group's EBITDA margin was down over 100 basis points, driven by taste and nutrition (down 120 basis points for the segment) with operating leverage, currency, and the impact from acquisitions/disposals only partially offsetting input cost inflationary pressures. Regionally, the group's growth was robust across markets with volumes up in mid/high single digits (across the Asia-Pacific, Middle East, and Africa region, Americas and Europe volumes were up 5.9%, 6.2% and 6.1% respectively), driven by both retail and food-service channels (out-of-home consumption continues to recover, through seasonal products and limited time offerings). Management introduced cautious guidance for fiscal 2023 with adjusted earnings per share growth expected at 3%-7% on a constant-currency basis before an expected 2% dilution in the year from the potential sale of the sweet-ingredients portfolio. We do not expect to materially change our EUR 109 fair value estimate after incorporating these numbers. Shares are undervalued.

In a press release on Jan. 11, Kerry Group announced that it had started exclusive negotiations to sell its sweet ingredients portfolio to IRCA for a consideration of EUR 500 million (EUR 375 million in cash and EUR 125 million in an interest-bearing loan note). The transaction implies an enterprise value/EBITDA multiple of 12.2 times and enterprise value/sales multiple of 1.2 times, both lower than Kerry's market multiples as of Jan. 11 closing prices. According to Kerry, the sweet ingredients business generated EUR 405 million (about 5% of group) revenue and EUR 41 million in EBITDA (about 3% of the group) in fiscal 2022, so it's not material to the group's results. Given that some of the end markets the sweet ingredient portfolio serves are growing at lower-than-group-average rates, we expect the transaction to be incrementally accretive to taste and nutrition's organic growth aspirations (from 10 basis points to 20 basis points) and EBITDA margins (about 40 basis points). The potential sale is expected to close in the first half of 2023 while proceeds are expected to be used for general corporate purposes and continuous refinement of the taste and nutrition portfolio. We believe that the planned transaction is a step in the right direction, as Kerry continues to look for ways to further improve its organic growth algorithm and enhance margins. We do not expect to change our EUR 109 fair value estimate and wide moat rating. At current levels shares look cheap.

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.

Kerry Group has evolved from its humble roots as an Irish dairy co-operative into a global flavor and nutrition powerhouse serving the food, beverage, and food-service sectors. Our wide economic moat rating is supported by intangible assets and switching costs stemming from the company's wide range of ingredient solutions and strong service component, which contributes to partnershiplike client relationships.

Kerry Group reported first-half fiscal 2022 results with volumes up 6.8%, driven by solid performance in taste and nutrition (8.6% volume growth in the half year and 10.3% in the second quarter) and higher-than-expected volume and pricing growth in the dairy business (volumes: 2.2% in the half year and 3.3% in the fourth quarter, pricing: 27.8% reflecting significant increases in dairy prices and raw material costs). The group EBITDA margin was flat year on year at 12.8% or EUR 518 million with operating leverage, currency, and the impact from acquisition/disposals offsetting input cost inflationary pressures. Regionally in taste and nutrition, growth was robust across markets with volumes up in high single digits (across Asia-Pacific, Middle East and Africa, and the Americas volumes were up 9.1%), driven by food service as out-of-home consumption continues to recover (up 17% in the period). Management reiterated guidance for fiscal 2022 of 5%-9% constant-currency-adjusted EPS growth (versus 7.3% on a reported basis in our model). We do not expect to change our fair value estimate after incorporating this set of numbers. Shares are slightly undervalued. Cash conversion came in lower at 72% with working capital outflows being the main driver, presumably due to higher input costs, which is in line with recent reporting by peers.

Kerry Group has evolved from its humble roots as an Irish dairy co-operative into a global flavor and nutrition powerhouse serving the food, beverage, and food-service sectors. Our wide economic moat rating is supported by intangible assets and switching costs stemming from the company's wide range of ingredient solutions and strong service component, which contributes to partnershiplike client relationships.

Kerry Group reported first-quarter fiscal 2022 results with volume growth up 5.6%, driven by good performance in taste and nutrition (6.8% volume growth in the quarter) and 0.7% growth in the dairy Ireland segment (formerly consumer foods, now dairy Ireland after the recently divested meat and meals segment). Pricing was also strong in the quarter at 6.6%, in line with performance across the wider consumer staples space. The group's EBITDA margin increased by 10 basis points, primarily driven by soft comparables and negatively affected by input cost inflation. Regionally in taste and nutrition, emerging markets and Europe continued to perform strongly with volumes up 7.9% (Asia-Pacific, Middle East, and Africa region's growth up 6.2%) and up 8.5% respectively, partially driven by foodservice as out-of-home consumption continues to recover strongly. Management reiterated guidance for fiscal 2022 of 5%-9% constant-currency adjusted earnings-per-share growth (versus 5.6% on a reported basis in our model). We do not expect to materially change our fair value estimate after incorporating this largely in-line set of numbers. Shares are slightly undervalued.

We don't expect to change our fair value estimates for our European food value chain coverage list due to the recent Russia-Ukraine conflict.

Kerry Group reported preliminary fiscal 2021 results with volume growth up 8%, driven by good performance in taste and nutrition (8.3% volume growth for the year and 7.2% in the fourth quarter) and higher-than-expected growth in consumer foods (6% for the year and 7.1% in the fourth quarter), which was primarily the result of strong performance in the recently divested meat and meals segment (with the remaining dairy business growing at low-single-digit rates) and soft comparables. The group trading margin was 11.9% up 40 basis points or EUR 876 million (higher than the EUR 865 million in our model at 12% margin). Regionally in taste and nutrition, emerging markets and Europe continued to perform strongly with sales up 14.4% (Asia-Pacific, Middle East and Africa region's growth up 11.3%) and up 9.9% respectively, driven by food service as out-of-home consumption continues to recover strongly. Management introduced guidance for fiscal 2022 of 5%-9% constant-currency adjusted earnings per-share growth (versus 5.6% on a reported basis in our model). Cash conversion was at a satisfactory 84% level (versus about 88% in our model). From a channel standpoint, the retail business increased volume at a 5.4% rate (6.8% in the fourth quarter), with the food-service channel recovering as expected (up 18% in the period and 10.1% in the fourth quarter, in line with recent disclosures by consumer packaged goods peers). We do not expect to materially change our fair value estimate after incorporating this largely in-line set of numbers. Shares are slightly undervalued.

From its humble beginnings as an Irish dairy co-operative, Kerry Group has transformed into a global taste and nutrition powerhouse catering to the food, beverage, and food-service markets. Our wide economic moat rating is supported by intangible assets and switching costs resulting from the company’s wide range of ingredient solutions offered and strong service component that supports clients throughout the whole product development cycle (ideation, concept creation, product development in the lab, plant level manufacturing, and launch), contributing to partnershiplike client relationships.

Kerry Group reported nine-month fiscal 2021 results with volume growth up 8.2%, driven by good performance in taste and nutrition (8.7% volume growth year to date and 6.3% in the third quarter) and higher-than-expected growth in consumer foods (5.6% year to date and 7.5% in the third quarter), which was primarily the result of strong performance in the recently divested meat and meals segment (with the remaining dairy business growing at low-single-digit rates). Regionally in taste and nutrition, emerging markets and Europe performed strongly with sales up 15.8% (Asia-Pacific, Middle East and Africa region's growth up 12.5%) and up 10.6% respectively, driven by foodservice as out-of-home consumption continues to recover strongly. The trading margin came in higher by 60 basis points, principally the result of a strong recovery in the foodservice channel (versus a 60-basis-point improvement for fiscal 2021 in our model) and operating leverage. Management reiterated guidance for the full year to 10%-13% constant-currency adjusted earnings per-share growth from 12%-15% previously, to account for the estimated impact of the Niacet acquisition (plus 1% contribution) and consumer food meats and meals disposal (minus 3% contribution). From a channel standpoint, the retail business taste and nutrition increased volume at a 4.9% rate, with the foodservice channel recovering as expected (up 21% in the period, in line with recent disclosures by consumer packaged goods peers). We do not expect to materially change our fair value estimate after incorporating this largely in-line set of numbers. Shares trade in 2-star territory.

During its capital markets day, Kerry Group introduced fresh midterm financial guidance for 2022-26, including 4%-6% volume growth (3.8% in our model, though without including the recent divestment of the lower-growth meat business and acquisition of the higher-growth Niacet business), an EBITDA margin of over 18% by 2026 (17.5% in our model), over 80% cash conversion (87% on average in our model), and 10%-12% return on invested capital (11.8% by 2025 in our model). The EBITDA margin target in particular implies about a 60-basis-point improvement per year, which according to Kerry will be driven by a combination of portfolio mix (10-20 basis points per year), operating leverage (10-20 basis points per year), and operating efficiencies (more than 20 basis points per year, with the bulk of this coming through over 2024-26). The last item is essentially a cost-saving program, which will require a EUR 120 million investment over 2022-24.

Kerry Group reported half-year fiscal 2021 results with volume growth up 9%, largely in line with expectations, driven by good performance in taste and nutrition (9.8% volume growth in the first half and 18% in the second quarter). The trading margin came in higher by 70 basis points, principally the result of strong recovery in the food-service channel (versus a 60-basis-point improvement for fiscal 2021 in our model). Management updated guidance for the full year to 10%-13% constant-currency adjusted earnings per share growth from 11%-15% previously to account for the estimated impact of the Niacet acquisition and the consumer foods meats and meals disposal. From a channel standpoint, the retail business of taste and nutrition increased volume at a 5.4% rate, with the food-service channel recovering as expected (up 25.2% in the period and about 80% in the second quarter, in line with recent disclosures by consumer packaged goods peers). Free cash flow of about EUR 222 million in the period implies 83% cash conversion, within long-term guidance. We do not expect to materially change our fair value estimate after incorporating this largely in-line set of numbers. The shares trade in 2-star territory.

From its humble beginnings as an Irish dairy co-operative, Kerry Group has transformed into a global taste and nutrition powerhouse catering to the food, beverage, and food-service markets. Our wide economic moat rating is supported by intangible assets and switching costs resulting from the company’s wide range of ingredient solutions offered and strong service component that supports clients throughout the whole product development cycle (ideation, concept creation, product development in the lab, plant level manufacturing, and launch), contributing to partnershiplike client relationships.