Uninspiring 2023 Guidance but Superior Volume Growth for Kerry's Ingredient Business in Q4

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.