Kerry Group Earnings: Resilient Volume Growth in Asia-Pacific and EMEA; Margins Improve

Kerry Group KYGA 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.