Kerry Group expects ‘modest input price deflation’ in second half

Kerry Group expects its input costs to fall in the second half of the year although the food technology and ingredients giant said the price environment remained in a state of flux.

Revenues at Kerry Group rose slightly in the first six months of the year to €4.12 billion as it continued to pass rising costs through to its customers even as input price inflation weighed on its margins. However, in a trading update on Wednesday, the group, which has its headquarters in Tralee, said demand remained resilient in the first half while margins reached “an inflection point” in the second quarter.

Total group revenues topped €4.12 billion in the six months to the end of June, 1.6 per cent ahead of the same period last year, mostly driven by a 4.5 per cent increase in pricing and business volume growth of 0.6 per cent.

Kerry said organic growth was offset by the impact of acquisitions and asset disposals over the period, including the agreement to sell its sweet ingredients business to US equity firm Advent International for €500 million.

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The group’s taste and nutrition division saw a 7.1 per cent increase in sales volumes in its Asia Pacific/Middle East/Africa region (APMEA) and a 4.6 per cent jump in Europe in the first six months of the year. However, volumes in the Americas fell back by 2.2 per cent amid “softer” retail market conditions with meat industry conditions “challenged” over the period.

Kerry said it continued to see headwinds in the US due to so-called “shrinkflation” as customers reduce product size and volume in a bid to trim costs. However, it said it expected conditions to improve in the third quarter and beyond.

Chief executive Edmond Scanlon said trading in the Americas was affected by the “significant maintenance work” carried out at one of its Mexican facilities, which “restricted capacity” in the three months to the end of June. “This could have had a low single-digit impact on sales in that part of the quarter,” he said, but “that won’t be a feature as we enter the third quarter and beyond”.

Overall, Kerry’s earnings before tax, depreciation, interest, deductibles and amortisation (Ebitda) reached €518 million over the period – up 0.1 per cent on the first half of 2022 – although the Iseq-listed group said its Ebitda margin shrank by 20 basis points to 12.6 per cent before improving in the three months to the end of June.

Kerry said the benefits of its cost-efficiency programme were “more than offset” by the impact of input cost inflation, which was passed through to customers in higher prices.

“We delivered a good performance in the first half of the year, recognising varying conditions across our markets,” Mr Scanlon said in a statement accompanying the update. “We continue to see good levels of customer innovation activity and our margins reached an inflection point in the second quarter.”

Speaking following the release, Kerry chief financial officer Marguerite Larkin said that while the group’s taste and nutrition division saw “double-digit” input cost inflation in the first half, Kerry was forecasting “modest deflation” in the second half.

Affirming its full-year earnings guidance for growth of 1-5 per cent, Mr Scanlon said Kerry remained “strongly positioned for growth”.

The food technology and ingredients company has recommended an interim dividend of 34.6 cent per share payable to shareholders in November, an increase of 10.2 per cent on last year.

James Molins, food and beverage equities analyst with Goodbody Stockbrokers, said the update from Kerry was a “solid” one, “with trading performance in line with expectations against a challenging market backdrop”.

“Following today’s update, we expect forecasts to remain largely unchanged, where we anticipate 4 per cent constant currency EPS [earnings per share] growth.”