Kerry Group upbeat, but braced for Brexit 'disruption' hit

Kerry Group’s share price shot up by almost 6% on the back of strong first-half earnings and revenue growth, positive full-year guidance, and the company claiming it is well-positioned to ride out any market disruptions borne by Brexit or global trade tensions.

Kerry Group upbeat, but braced for Brexit 'disruption' hit

Kerry Group’s share price shot up by almost 6% on the back of strong first-half earnings and revenue growth, positive full-year guidance, and the company claiming it is well-positioned to ride out any market disruptions borne by Brexit or global trade tensions.

However, chief executive Edmond Scanlon warned that Brexit, in particular, will cause some short-term disruption.

The Tralee-based food and ingredients group saw revenues rise nearly 11% in the first six months of the year, to €3.6bn. Trading profit for the half-year increased by almost 13% to just shy of €383m and after-tax profit rose 5.6% to €239.4m.

“We are pleased with business performance...and our continued outperformance versus the markets in which we operate,” Mr Scanlon said.

While rival Irish nutritions giant Glanbia saw its market value plunge by €550m last week after warning over its full-year sales outlook due to global trade tensions, Mr Scanlon said Kerry remains well-positioned for future growth despite trade war fears.

Kerry expects to grow adjusted earnings per share by between 7% and 9% this year.

However, despite Kerry not importing any ingredients into the UK and servicing that market from its 25 manufacturing facilities there, Mr Scanlon said Brexit will pose more of a problem for the group.

“There will be some short-term disruption [from Brexit], there’s no doubt about that. For the longer-term, what we’d be more concerned about is the impact on the UK consumer. Right now, we see the [UK] market being soft, from a demand standpoint and we don’t see anything positive happening to that demand in the short-term,” he said.

“Even if there’s a really orderly Brexit, we don’t see any significant improvement in [UK] consumer demand. In the longer term, I think things will normalise. We’re as well-positioned as we possibly can be,” he said, adding that the group has spent €5m this year on preparing for every Brexit outcome imaginable.

Kerry also said it will continue to seek acquisition opportunities, having spent more than €327m on two North American purchases in the first half. Mr Scanlon said main acquisition activity will be focused on developing markets and the group’s key taste and nutrition division, which contributed more than 80% of first-half revenue.

When questioned about Kerry being linked with a bid for US conglomerate DuPont’s food ingredients and nutrition division, which would effectively double Kerry Group’s size, Mr Scanlon was more guarded.

“There isn’t a transaction that happens where our name isn’t connected. We don’t guide on M&A, but acquisitions form an important part of our business. We are very very good at identifying, evaluating, integrating and generating value from acquisitions and we don’t rule anything in or out,” he said.

Kerry said revenues at its consumer foods division - which covers brands such as Galtee and Denny - grew by 0.6% in the first half, to €689m. While the group announced the closure of one of its UK plants, in June, leading to the loss of up to 900 jobs, that was largely to do with the loss of a Tesco supply contract. The group does not foresee any Brexit-related closures or job cuts in the UK.

Kerry grew sales volumes by nearly 3% in the Americas, with 2.2% and nearly 10% growth evident in Europe and Asia-Pacific respectively.

Analyst reaction to the first half figures was positive.

“In the context of an underwhelming results season from its peer set, Kerry’s interim report and outlook reassures and suggests continued operating momentum through the second half of 2019,” Davy Stockbrokers said.

Davy said Kerry’s consumer foods performance was “in line in a challenging market”.

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