Kerry Group’s margins narrow in first quarter despite strong revenues

Kerry Group saw its margins squeezed in the first quarter despite a surge in the food and ingredients giant’s revenues as it sought to balance higher input costs by raising prices to its customers.

The company’s earnings before interest, taxes, depreciation and amortisation (ebitda) margin narrowed by 70 basis points (0.7 per cent) between January and March, it said in an interim management statement on Thursday, although the group left its full-year earnings guidance unchanged at more than €1.2 billion.

The group said its ebitda margin had decreased, “primarily driven by the mathematical impact of passing through input cost inflation, partially offset by the positive effect from cost efficiency initiatives”.

“Our performance in the first quarter was driven by good volume growth in the Asia-Pacific, Middle East and Africa [APMEA] region and Europe, led by strong growth in the food service channel, as customers in the North America retail channel worked through elevated inventory levels across the period,” said Kerry Group chief executive Edmond Scanlon. “Overall, growth was led by the dairy, snacks and pharma markets, as customers continued to innovate their offerings while navigating the heightened inflationary environment.”

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Kerry achieved organic growth of 8.5 per cent, mostly driven by the 8.3 per cent rise in prices it charged customers.

The group’s food and ingredients division saw overall volume growth of 1.2 per cent in the APMEA regions, also largely driven by prices, which increased 7.2 per cent. In Europe, the division achieved volume growth of 3.9 per cent in the first quarter, “while managing significant price inflation”, Kerry said.

However, sales volumes at Kerry’s Irish dairy division fell 5.8 per cent with prices surging 14.8 per cent, reflective of wider market conditions, the group said.

Milk prices have fallen from high levels in the early months of the year, with companies in the sector now expecting inflation to turn to deflation, Kerry said, “given global market supply and demand dynamics across the first quarter”.

Group net debt stood at €1.7 billion at the end of March, down from more than €3 billion at the end of last year. This “reflected cash generation and proceeds from the disposal of the sweet ingredients portfolio”, which it has agreed to sell to US private equity group Advent International for €500 million.

“We continued to make good strategic progress through footprint expansion and portfolio evolution with the sale of our sweet ingredients portfolio, further enhancing and developing our business in areas where we can add most value,” said Mr Scanlon. “While recognising the current market uncertainty, we believe we remain strongly positioned for growth and we reiterate our full-year constant currency earnings guidance.”