Kerry shares fall as Dairy Ireland woes force it to tweak earnings forecast

Kerry Group’s shares fell on Thursday after it said earnings this year will come in at the lower end of previous guidance as sales slid at its Dairy Ireland unit in a “challenging” environment.

The nutrition giant said its full-year earnings per share growth would come at the bottom end of its previous 1-5 per cent guidance, excluding the impact of currency fluctuations.

Dairy Ireland, with processing plants in Listowel, Charleville and Newmarket and brands such as Dairygold spreads and Cheestrings snacks, saw its sales volumes plunge 12.1 per cent in the third quarter and prices slide 17.6 per cent in a deflationary environment across the sector.

Shares in Kerry fell by 3.6 per cent to €72.72 in Dublin, leaving them down 23 per cent for the past 12 months.

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Still, Kerry’s key taste and nutrition division saw its sales volumes grow by 1.6 per cent during the third quarter, though pricing eased by 1.4 per cent, “reflective of some input cost deflation”, it said.

“Taste and Nutrition remains strongly positioned for volume growth and margin expansion while recognising current market conditions, however Dairy Ireland performance continues to be impacted by challenging industry dynamics,” said chief executive Edmond Scanlon. “Given this context, we expect our constant currency earnings growth to be at the low end of our guidance range.”

Dairy Ireland accounted for less than 6 per cent of group earnings before interest, tax, depreciation and amortisation (ebitda) in the first half of this year,

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Previous talks on Kerry Group selling a 60 per cent stake in the dairy business to its Kerry Co-op, the group’s main shareholder, with about an 11.4 per cent stake, broke down two years ago amid a standoff over price. Kerry Group had been looking for a deal that placed a €800 million valuation on a joint venture.

The board of the co-op drafted in a veteran of the industry — former Dairygold boss Jim Woulfe — early this year to advise on a strategic review, which is widely expected to amount to a fresh attempt to strike a deal.

Kerry also said it plans to buy back €300 million of its own shares, with the programme expected to start in early November. The amount being committed equates to 2.5 per cent of the group’s current market value.

“While the weakness in Dairy Ireland is disappointing, we consider the consistency and quality of delivery from Taste & Nutrition, as evidenced in today’s release, to be underappreciated by the market at these [stock trading] levels,” said Patrick Higgins, an analyst with Goodbody Stockbrokers.