Input cost concerns hits shares of food giants

CONCERNS over rising input costs hit the shares of some global food giants yesterday as analysts contemplated future earnings in the 2011 window.

IFF, Kraft and PepsiCo’s share prices fell in anticipation of slower earnings growth while Kerry Group, the Tralee-based food giant faces similar pressures in 2011, analysts said

The markets will watch with interest what Kerry has to say about the current year when its issues its results for last year on February 22.

Back in November the group’s interim management statement said the consumer to food ingredients group was on course to deliver “double digit” growth in earnings for 2010.

Kerry forecast that earnings per share would rise about 15%, following a strong third quarter.

In its market up-date an interim management statement covering the three months to the end of September said Kerry achieved “solid organic growth” in line with the year so far.

And despite the share price falls in some key global stocks Kerry’s share price advanced 1.58% to €25.70.

NCB Stockbrokers believe the group will feel the earnings pressure and suggests it will probably decide to modify its earnings forecasts for 2011 to reflect the harsher raw material costs.

“We see management adopting a conservative guidance approach at this stage in the year given the trading pressures but recognise the benefits that this volatility bestows in terms of product reformulation activity as manufacturers seek ingredient based solutions to protect their margins,” said Paul Meade of NCB.

He believes Kerry will supplement its 2011 growth through acquisitions given its balance sheet strength and indications in Q4 2010 that it would spend up to €200m on acquisitions before year end.

Kerry group chief executive Stan McCarthy at the interim results stage the group had enough resources and bank backing takeover of several billion euro when the right opportunity presents itself.

The group’s go to market strategy for its ingredients and flavourings ranges has given the group greater traction with its big global customers in recent years, and has won acceptance from the markets.

The shares reached a six year high of just over €27 in 2010.