Kerry Group trims earnings forecast amid dollar weakness

Food giant Kerry Group lowered its full year earnings forecast on Thursday as a result of dollar weakness against the euro.

The company now expects its adjusted earnings per share (EPS) to grow by between 3 and 7 per cent to between 333.1 and 346 cent per share, compared to previous guidance for 5-9 per cent growth.

The lowered forecast was issued as Kerry Group revealed its adjusted EPS rose by 7.5 per cent to 143.8 cent in the first half of the year. Sales volumes in its largest division, taste and nutrition, rose by 4.2 per cent in the first half of the year, almost twice the pace of its consumer foods unit.

Trading profit for the period rose by 5.2 per cent to €338 million.

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Shares in the group rose by as much as 1.5 per cent in early trading in Dublin to €75.43, as analysts, including Jason Molins at Goodbody Stockbrokers, had already expected Kerry to tweak its full-year projections and had pencilled in 4.6 per cent full-year EPS growth.

Currency movements

“Against a background significant adverse currency movements, we achieved a strong overall business performance in the first half of 2017,” said outgoing chief executive Stan McCarthy. “Taking into account currency translation headwinds of 4 per cent and a 2 per cent improvement in underlying performance at constant currency rates, we now expect to achieve [full year] growth in adjusted earnings per share of 3-7 per cent.”

On Brexit, the company said it was well positioned for any change to the UK’s trading relationship with the EU with more than 90 per cent of product sold in the UK manufactured there.

Mr McCarthy said approximately three lines of business were directly exposed to Brexit but that the company was attempting to drum up dairy sales in mainland Europe, particularly in Germany and the Netherlands, to shield it from any trade-related downturn in the UK.

Mr McCarthy signalled in February that the food giant plans to return to the acquisitions trail, with as much as €1 billion to spend, after concentrating in 2016 on integrating €900 million of deals carried out the previous year.

He is set to retire next month after nine years at the helm and will be replaced by Edmond Scanlon, currently head of its fast-growing Asia-Pacific business.

Acquisitions

Kerry Group has spent €4.2 billion on mainly small bolt-on acquisitions since 2000, according to calculations by analysts at Deutsche Bank, as it built up its taste and nutrition business. The company has consistently said that it has no plans to sell off its lower-margin, but cash generative, legacy consumer foods business, where brands include Dairygold, Denny, Mattessons meats and EasiSingles cheese slices.

During the first half, Kerry completed three bolt-on acquisitions, in China, Australia and Brazil, at a combined cost of €97.4 million.

The group posted a 10.6 per cent trading margin, driven by a 0.2 percentage point increase in the taste and nutrition business to 13 per cent as the consumer foods margin dropped by 0.7 points to 7.6 per cent.

The taste and nutrition business, which sells ingredients to beverage, confectionary and culinary food companies, saw positive momentum in the Americas and Asia-Pacific with like-for-like volume growth of 3.6 per cent and 10.3 per cent, respectively. European, Middle East and Africa volumes rose by 2.3 per cent.

“Whilst the retail environment remained challenging across European markets, the continued growth of out-of-home consumption and channel diversification provided good opportunities for growth and market development,” Kerry said.

Trading profit at the division rose by 8.8 per cent to €331 million. However, trading profit fell by 11.1 per cent to €51 million in the first half in the consumer foods division the as the UK and Irish markets “remained highly competitive” and UK inflationary pressures continued to weigh.