Company Reports

Kerry Group reported solid third-quarter volume growth of 3%, alongside a 0.9% year-over-year rise in EBITDA. Shares are up 2% intraday.

Kerry Group reported first-half volume growth of 3%, pricing of 0.2%, and an EBITDA margin improvement of 100 basis points. The full-year guidance was confirmed.

We are transferring coverage of Kerry Group, a leading global player in the specialty food ingredients and flavors market with a large exposure to the foodservice channel that accounted for 32% of the 2024 group revenue.

Kerry Group has evolved from its humble beginnings as an Irish dairy cooperative into a global leader in taste and nutrition, serving the food, beverage, and foodservice sectors. The global market for specialty ingredients and flavors is estimated to be EUR 85 billion, with Kerry ranked among the top 10 companies. There remains significant opportunity for market expansion, driven by customer demand for nutritional enhancement, cleaner labels with simple, natural ingredients, cost efficiencies, and improved sustainability credentials. Additionally, stricter government regulations aimed at reducing fat, salt, and sugar in foods present opportunities for more extensive product reformulation.

Kerry Group has evolved from its humble roots as an Irish dairy cooperative into a global flavor and nutrition powerhouse serving the food, beverage, and foodservice 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 volume growth of 3.1%, pricing of 0.2%, and an EBITDA margin improvement of 90 basis points. The full-year guidance was confirmed.

Kerry Group reported preliminary 2024 adjusted EPS growth of 9.7% in constant currency, at the upper end of its guidance, as volume growth continued to accelerate in the fourth quarter. Divestment of the dairy business, announced in November 2024, is also progressing well.

In the third quarter, wide-moat Kerry Group reported modest results with positive volume growth of 3.4%. However, due to negative pricing and currency contributions revenue declined by 3% in the reported nine months. Kerry confirmed its full-year guidance for adjusted EPS growth of 7%-10%, which was upgraded in the second quarter. We maintain our fair value estimate of EUR 95 per share.

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.

During its US investor day, wide-moat Kerry showcased its science and innovation portfolio, solid business in North America—the largest region for the company—and the market penetration opportunity in foodservice and emerging markets. The group did not make any material updates to short-term guidance. It said that third-quarter results—which will be released on Oct. 24—should be in line with market expectations. We do not expect to materially change our fair value estimate. The shares are nearly fairly valued at current levels.

Wide-moat Kerry Group reported first-half results with volumes up 1.7% and a negative pricing contribution of minus 4% reflecting a deflationary environment. 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 7.3%, with volumes in the retail channel returning to growth. Within this, emerging-market volumes were up 6.6% 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 1.9%, with lower dairy market prices hitting pricing, down 6.9%.

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 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.